Tax Saving Schemes (ELSS) doubts clarified

Q Can I change the option chosen in an ELSS investment?
A A change between the growth and dividend option amounts to a redemption and then re-investment as the NAVs are different for each of the options. Since there is a lock-in on the investment, redemption is not possible and as such a switch between the growth and dividend option is not permitted. However, you can change the option chosen between the dividend and the dividend re-investment since the NAVs for both the options are the same and the switch has no financial implications.

Q I have invested in an ELSS through an SIP. Will the lock-in apply from the date of the first instalment?
A No. Each instalment of the SIP would have a lock-in of three years from the date on which the investment was made. So if you start a monthly SIP on 5th Jan, 2008 for 12 months, the first instalment will be locked-in till 4th Jan 2011, the second till 4th February 2011 and the last instalment till 4th December 2011.

Q I have invested in an ELSS jointly with my husband. Can both of us claim sec 80(c) benefits for the investment made?

A The benefit of Sec 80(c) for investments made in an ELSS is available only to the first holder. Both the holders cannot claim the benefit. When investments are being made jointly, the investor who wants to claim tax deduction must be designated as the first holder.

Q What will be the tax on the redemption of units in an ELSS ?
A ELSS units can be redeemed only on completion of the lock-in period of three years. The redemption amount will include the principal invested and capital appreciation/loss. While the principle is exempt from tax, long-term capital gain tax will apply on the component of capital appreciation. Currently, long-term capital gains from equity funds (including ELSS) are exempt from tax. Therefore no tax is payable on redemption of units.

Q Can I continue to be remained invested in an ELSS even after the lock- in of three years is over or should I compulsorily redeem the units?
A You can continue to hold the investment in ELSS even after the lock-in of three years from the date of investment is over. Investments held beyond this period will not be locked-in and investors can redeem units at any time.

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