Do all mutual funds provide tax benefit under section 80c?

I want to save tax under section 80c. Does investing in mutual fund provide the tax benefit?

Pijush Kanti Biswas

Investing in mutual funds can help you reducing your tax burden, but not all investments into mutual funds are tax-free under Indian Income Tax Act under section 80c.

Tax benefits under section 80c:

Tax Planning or Income tax savings are an integral part of investment and overall financial planning that helps in a bid to maximize wealth. Section 80c of the Indian Income Tax Act is one of the key sections for saving your income tax. Under this section, investments up to 1,50,000 per annum are eligible for deduction from your taxable income.

Equity Linked Savings Scheme (ELSS) is the only Mutual Funds offer tax benefits under section 80C of the Income Tax Act. As per this section, one can avail tax exemptions up to INR 1,50,000 by investing in ELSS funds.

ELSS, also known as tax saving mutual funds, is a mutual fund with diversified portfolio. Fund manager of ELSS invests mainly in equity and stock related instruments having high risk and deliver high returns.

Features of investing in ELSS mutual funds:

1. Various tax benefit.

2. 3 years of lock-in period which is less then FDs (require minimum 5 years to claim tax rebate under 80c) and can be held even after the completion of three years.

4. Offers both dividend and growth options.

5. Only Tax Saving instrument under section 80c.

Some other tax benefits on mutual funds:

1. The dividend received by the investors from the mutual funds is tax free in the hands of the investors.

2. If you sell your equity mutual funds after a year, the returns will qualify for long-term capital gains tax. Long-term capital gains tax is nil on equity. If you sell your equity mutual funds before a year, you will have to pay short-term capital gains tax of 15 per cent on your returns.

Happy Investing!

Arpit Chandak

No, all mutual funds do not provide tax benefits under section 80C of the Income Tax Act. The only category of mutual funds which is exempted from tax deduction are Equity Linked Savings Scheme or ELSS funds.

 Equity Linked Savings Scheme funds are also known as tax savings mutual funds. They are the most popular in the equity funds category due to the tax benefits provided by them under section 80C of the Income Tax Act. Investor can save up to a amount of 1.5 lakhs by investing in these funds. But these funds have a lock-in period of 3 years. Investors cannot redeem their money before the maturity date. Most of the mutual funds in India generally don’t have a lock-in period but ELSS funds are exception in this aspect. Below are the top performing ELSS funds:

No other equity mutual funds qualify for the tax exemption under section 80C of the act. However, equity can offer other tax benefits to the investor. For example, investors can get tax free dividends from the equity funds. If you hold your equity mutual funds for more than a year, the returns will qualify for long term capital gains tax. If you sell your equity funds before a year, 15 % tax is levied on the short term capital gains. Investors can also invest in these funds through Systematic Investment Plan (SIP) to minimize the market risk. These funds are great way to save tax on your hard earned money. 



ELSS is the only category of Mutual Funds that provide tax benefits under section 80c, up to 1.5 lac. ELSS stands for Equity Linked Saving Scheme. The investments in ELSS Mutual Funds are locked-in for 3 years. The returns earned on these mutual funds are 100% tax free. 

Check the best ELSS tax saving mutual funds below. 

Other categories of (open-ended) Mutual Funds are - equity funds, debt funds, hybrid funds, liquid funds etc. These mutual funds don't have any lock-in. You can withdraw anytime. 

For more on mutual funds category, read here.

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