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ELSS or Equity Linked Savings Scheme is among the most popular tax saving instruments in India. ELSS offers the benefits of equity market investments as well as generous tax benefits. Naturally, ELSS is among the most favoured investment schemes in India. 

How can you Claim Tax Deductions in ELSS?

Tax planning is a very important component of financial planning. If you don’t save tax on investments, you may end up losing a significant portion of your income to taxes. Hence investing in tax saving schemes is essential to attain your desired financial goals.The financial year is about to come to a close and everyone rushes to claim their tax deductions. However, many investors get confused while claiming taxes on their mutual fund or ELSSSIP investments. If you have been investing in SIPs for a while, you may not have this confusion. However, if you are a novice investor, you may need some guidance. So, let’s begin with the basics:

What is ELSS?

ELSS or Equity Linked Savings Scheme is among the most popular tax saving instruments in India. ELSS offers the benefits of equity market investments as well as generous tax benefits. Naturally, ELSS is among the most favoured investment schemes in India.

How to claim tax deductions under ELSS?

For starters, ELSS investments qualify for tax deductions under the section 80C of the Income Tax Act. Under the section 80C, ELSS is eligible for tax deductions of up toRs 1.5 lakh in a financial year. If you want to claim the tax benefits, you have to be careful about the amount you invest under ELSS. In case you end up investing more than Rs 1.5 lakh, you won’t be able to claim tax deductions on the investment above Rs 1.5 lakh. You will be able to claim a maximum of Rs 1.5 lakh as tax deductions even if you have made multiple ELSS investments. There is no particular limit on the number of ELSSS investments in order to claim tax deductions. For instance, if you splitRs 1.5 into four ELSS schemes, you will still be able to claim the entire tax deductions under the section 80C.

Similarly, SIP investments are also eligible for tax deductions under the section 80C of the Income Tax Act. If you want to claim the maximum tax deduction of Rs 1.5 lakh from your SIP investment, you can do so via a single SIP or multiple SIPs. There is a common misconception that one needs to open a new SIP investment each year, in order to obtain tax benefits under the section 80C. This is not true; you can claim tax deductions from the amount invested in each financial year. However, you may invest in a new scheme if your present scheme is not performing well. Another major confusion regarding ELSS schemes is that investors believe that it is compulsory to withdraw money from ELSSS after the lock-in period. This is not necessary. You can continue with the investment if it performs well.

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