Last week I wrote “Simple Tax Planning Guide and ABC of Section 80 C” – where I have not missed a chance to write that ELSS (Equity Linked Saving Schemes) of Mutual Fund is undoubtedly is the best tax saving instrument. But again the same question echoed by readers – What will happen to ELSS after new Direct Tax Code (DTC)?
Read – PPF Vs ELSS
In last 1 year I have received 30-40 comments where readers have raised this concern. Some recent comments are:
Comment 1. After DTC comes into effect, probably by 2012 what will happen to my ELSS investment done this year? If I pay Canara Robecco equal installments (SIP) for next 5-6 months… what’s the future? Will there be a lock in after DTC also? Will the fund (ELSS) perform as well as it is performing now? What’s the future of ELSS post DTC?
Comment 2. What’s the best alternative of ELSS for next year when the proposed DTC kicks in? Right now I’m utilizing 100% 80C through ELSS but confused if there’s any such scheme will remain available post DTC except crappy ULIPS etc. any thought? I don’t want to dive into debt except mandatory EPF deductions through my employer.
Comment 3. Could you please tell me that if I invest 10000 this year in ELSS and lock for say 5 years from this year (2011), then should I pay 10000 every year till the fifth year? So for this year investment, I can get a tax exemption. But consecutive years what would be the case and how should I go about?
So now there are lots of questions in these comments – let’s answer one by one:
Q1. Will there be tax benefit on ELSS after DTC?
According to last DRAFT of DTC, ELSS will not be counted as tax saving instrument. Here important word is DRAFT – so you never know final draft can give a positive surprise. Mutual Fund industry is trying hard that ELSS should be included in Section 66 (replacement of section 80C in DTC) so keep your fingers crossed.
Q2. When will DTC come into effect?
There is a high probability that it will not be introduced in April 2012. But this is also true that UPA govt. would like to bring this new code before parliament election so April 2013 should be a better guess.
Q3. After DTC comes into effect, what will happen to my ELSS investment done this year?
If you make investments in ELSS this year, you can claim this as deduction under section 80C. As ELSS is a onetime investment & you don’t need to make any regular payments like ULIP or PPF. I don’t know why people are worried.
Q4. Will there be a lock in after DTC implementation also?
Yes, you need to keep your funds locked in for coming 3 years.
Q5. What’s the future of ELSS post DTC?
If ELSS can’t get a chance to be a tax saving instruments – either these funds will be made open ended or will be merged with other funds. The decision lies with the individual fund houses.
Q6. What’s the best alternative of ELSS for next year when the proposed DTC kicks in?
If I talk about current available products NPS (New Pension Scheme) looks a better alternative. And it looks NPS is the biggest reason why ELSS is not part of DTC Draft. 🙁
Q7. Could you please tell me that if I invest 10000 this year in ELSS and lock for say 5 years from this year (2011), then should I pay 10000 every year till the fifth year?
First of all ELSS is having 3 years of locking period, secondly there is no compulsion of regular payments.
Bonus Question. Is it a good time to invest in ELSS fund?
Hey no one asked this! So what – I know most of you are having this question in your mind. I think this is a good time to invest in ELSS or any other diversified equity fund ‘IF’ your investment horizon is 5-7 years or your overall exposure to equity is low.
Go ahead and pick the last ripe fruit.