Tax saving mutual funds that also grow your wealth
Equity Linked Savings Schemes (ELSS) offer the shortest lock-in among Section 123 (earlier Section 80C) options, with the long-term growth potential of equity. Here is how they work under the new Income-tax Act, 2025.
- 3-year lock-in, the shortest in Section 123
- Start a monthly ELSS SIP from April
- Help with tax-regime questions in Dehradun
Income-tax Act, 2025: Section 80C is now Section 123
The Income-tax Act, 2025 replaced the 1961 Act and is in force from 1 April 2026 (FY 2026-27). The deduction most salaried families know as "80C" continues, but under a new section number.
- Section 123 (earlier Section 80C) allows a deduction of up to ₹1.5 lakh a year.
- The limit is combined: ELSS, PPF, EPF contributions, NSC, life insurance premium, tax-saver FD, Sukanya Samriddhi, children's tuition fees and home-loan principal all share the same ₹1.5 lakh.
- It is available only under the old tax regime. The new regime is the default and does not allow this deduction. You must actively choose the old regime to claim it.
Does ELSS still make sense for you?
Your tax regime decides whether ELSS saves tax. Its value as a long-term equity investment does not change.
If you choose the old regime
- ELSS qualifies under Section 123, up to ₹1.5 lakh combined.
- Tax saved can be significant at the 20% and 30% slabs.
- Usually worth comparing if you also claim HRA, home-loan interest and other deductions.
If you are in the new regime (default)
- No Section 123 deduction for ELSS or any other option.
- ELSS still works as a diversified equity fund for long-term goals.
- The 3-year lock-in can act as a helpful brake on panic selling.
How much can ₹1.5 lakh in ELSS save?
Under the old regime, for an investor who uses the full Section 123 limit on ELSS alone, before any surcharge.
| Your income-tax slab | Tax saved | 4% health & education cess | Total saving |
|---|---|---|---|
| 30% slab | ₹45,000 | ₹1,800 | ₹46,800 |
| 20% slab | ₹30,000 | ₹1,200 | ₹31,200 |
| 5% slab | ₹7,500 | ₹300 | ₹7,800 |
Illustrative only. Ignores surcharge, rebate and other deductions that already use part of the ₹1.5 lakh limit. FY 2026-27 (Income-tax Act, 2025).
The 3-year lock-in applies to every SIP instalment
ELSS has the shortest lock-in among Section 123 options: 3 years. With a lumpsum, the whole amount unlocks together. With a SIP, each instalment is locked separately from its own purchase date.
Example: Meena, a teacher in Dehradun, starts a ₹12,500 monthly ELSS SIP on 10 April 2026 and invests ₹1.5 lakh over FY 2026-27.
- The 10 April 2026 instalment can be redeemed from 10 April 2029.
- The 10 October 2026 instalment unlocks on 10 October 2029.
- The last instalment, 10 March 2027, unlocks on 10 March 2030.
Unlocking does not mean you must sell. Many investors stay invested well beyond three years, because equity generally needs five years or more to smooth out market swings.
Comparing Section 123 options
Lock-in, return type and taxation side by side. Government scheme rates are for Oct–Dec 2026 (Q3 FY 2026-27).
| Option | Lock-in | Return type | Rate | Tax on returns |
|---|---|---|---|---|
| ELSS (equity mutual fund) | 3 years per instalment | Market-linked, not assured | Varies with markets | LTCG 12.5% on gains above ₹1.25 lakh a year |
| Public Provident Fund (PPF) | 15 years (partial withdrawal from year 7) | Government-set, revised quarterly | 7.10% | Tax-free interest and maturity (EEE) |
| National Savings Certificate (NSC) | 5 years | Fixed at purchase | 7.70% | Interest taxable at slab rate |
| Tax-saver bank FD | 5 years | Fixed at booking | Set by each bank | Interest taxable at slab rate; TDS may apply |
| Sukanya Samriddhi Yojana (SSY) | Up to 21 years (girl child under 10) | Government-set, revised quarterly | 8.20% | Tax-free interest and maturity (EEE) |
| Senior Citizens Savings Scheme (SCSS) | 5 years (age 60+) | Fixed at investment | 8.20% | Interest taxable at slab rate |
Small-savings rates: Oct–Dec 2026 (Q3 FY 2026-27), announced by the Government before the RBI's 7 Oct 2026 repo hike. Bank FD rates vary by bank; check the latest rate before booking. ELSS returns are not assured.
Where ELSS stands out
- Shortest lock-in among Section 123 options
- Equity growth potential for long-term goals
- Start with a small monthly SIP
What to keep in mind
- No assured return; value can fall, even below what you invested
- No early exit for 3 years per instalment
- Deduction only if you choose the old regime
Beat the March rush with an April ELSS SIP
Every year, offices across Dehradun and Uttarakhand scramble in February and March to submit investment proofs. Lumpsum ELSS bought in a hurry puts all your money into the market on a single day, at whatever level it happens to be.
A monthly ELSS SIP from April is calmer and usually smarter:
- ₹12,500 a month completes the full ₹1.5 lakh by March.
- Purchases are spread across twelve market levels (rupee cost averaging).
- No last-minute strain on February and March salaries.
- Proofs are ready well before your employer's deadline.
Learn how monthly investing compounds on our SIP investment page, and test amounts on the SIP and goal calculators.
Confirm your regime
Check with your employer or CA whether you will file under the old regime this year.
Work out the gap
Add your EPF, insurance premium, tuition fees and home-loan principal. ELSS fills whatever remains of ₹1.5 lakh.
Complete KYC and mandate
One-time, paperless, and we help you with every step.
Start the SIP in April
Use the account statement as your investment proof.
Frequently asked questions
Is ELSS still eligible for deduction after the new Income-tax Act?
Yes, under the old tax regime. The Income-tax Act, 2025 is in force from 1 April 2026 and the familiar 80C deduction now sits in Section 123 (earlier Section 80C), with the same ₹1.5 lakh combined limit. The new regime, which is the default, does not allow this deduction.
I am in the new tax regime. Should I still look at ELSS?
You will not get a tax deduction, but ELSS is still a diversified equity mutual fund. Some investors like the 3-year lock-in as a built-in discipline. If you do not need the deduction, you may also consider other equity funds that have no lock-in.
How does the 3-year lock-in work for an ELSS SIP?
Each SIP instalment is locked for 3 years from its own purchase date. An instalment invested on 10 April 2026 can be redeemed from 10 April 2029; the instalment of 10 March 2027 can be redeemed only from 10 March 2030.
How are ELSS gains taxed?
After the 3-year lock-in, all gains are long-term. Long-term capital gains on equity funds are taxed at 12.5% on gains above ₹1.25 lakh a year, across all your equity investments.
Is ELSS better than PPF?
They do different jobs. PPF offers a government-set rate and tax-free interest with a 15-year lock-in. ELSS is market-linked, with no assured return but higher growth potential and a 3-year lock-in. Many families use both.
When is the best time to invest in ELSS?
Early in the financial year. Spreading your ELSS investment through a monthly SIP from April avoids the March rush, averages your purchase cost and keeps your cash flow comfortable.
Can I withdraw ELSS before 3 years in an emergency?
No. The lock-in is mandatory, except on the death of the investor, when the nominee or legal heir may redeem after one year from allotment. Keep a separate emergency fund.
Ready to start your investment journey?
Visit us at Ghanta Ghar, Dehradun, or talk to us on WhatsApp. We serve investors across Uttarakhand and Delhi NCR.