Traditionally, the last three months of the financial year, are considered as the tax planning season, wherein individuals focus on making certain tax-saving investments.
However, ever since the New Tax Regime was introduced in the Union Budget 2020-21, the income tax slab structure under it was made attractive over the years to encourage many individual assessees, and then the New Tax Regime made the default tax regime from Assessment Year 2024-25 onwards, the obligation to make tax-saving investments has reduced. Take the case of Equity Linked Saving Schemes (ELSS)…
The AMFI data reveals that net inflows into ELSS have reduced significantly compared to other sub-categories of equity-oriented mutual funds.
The key reason behind this is possibly that the New Tax Regime is beneficial for a large section of India’s taxpayers even though it is devoid of many exemptions and deductions, which are available under the Old Tax Regime.
As per the CBDT Chairman, Mr Ravi Agarwal, about 74% of the 8.0-8.5 crore individual taxpayers have already adopted the New Tax Regime. Going forward, he sees around 95-97% of these taxpayers joining the New Tax Regime.
In addition to the benefit due to slab rate reduction, the limit for Section 87A rebate has been increased over the years, proving to be a sweetener for many individual taxpayers.
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That being said, notwithstanding the above, some wise investors are still adding ELSS (also known as tax-saving mutual funds) into their investment portfolios. Perhaps they are approaching ELSS not just for tax saving but even to build wealth over the long term.
The Assets Under Management (AUM) of the ELSS category is worth Rs 2.32 lakh crore as of January 2025, 13.6% more compared to January last year. ELSS sub-category has a folio count of 1.7 crore as of January 2025.
Return Potential of ELSS
ELSS are mandated to invest a minimum of 80% of their total assets in equity and equity-related instruments in accordance with the equity-linked savings scheme 2005, as notified by the Ministry of Finance.
ELSS come with a 3-year lock-in period, and although the returns are market-linked,
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