Does Mutual Fund Come Under 80C

Mutual funds, specifically Equity Linked Savings Schemes (ELSS), are eligible for tax deductions under Section 80C of the Income Tax Act of 1961.
EXPLORE FUNDS
Do mutual funds come under 80C?
EXPLORE FUNDS
3 min
8-July-2024

ELSS mutual funds are unique in being the only category of mutual funds eligible under Section 80C of the Income Tax Act, 1961. Investing in ELSS allows you to avail a tax deduction of up to Rs 1,50,000 annually, resulting in potential tax savings of up to Rs 46,800 per year.

Mutual funds have become a favored investment choice for those aiming to build wealth over time. A common question among investors is whether mutual funds qualify for deductions under Section 80C of the Income Tax Act, 1961. No, only a special category of mutual funds called ELSS mutual fund schemes comes under Section 80c. You will not get tax benefits by investing in mutual funds other than ELSS.

This blog will help you learn about this query, providing a detailed examination of the tax implications associated with investing in mutual funds.

What are ELSS mutual funds?

ELSS stands for Equity Linked Savings Scheme. These mutual funds are essentially tax-saving mutual fund schemes that invest mainly in equities. According to the SEBI regulations, equity-oriented mutual funds invest a minimum of 80% of their total corpus in equity or equity-related instruments. However, there are many ELSS mutual fund schemes that have invested over 98% of the corpus in equities.

Top 3 benefits of ELSS funds

The best thing about ELSS mutual funds is that it provides you with three major benefits:

1. Tax exemption

ELSS schemes (both lumpsum investment and SIP investment), offer a tax exemption up to Rs. 1.5 lakh from your annual taxable income, under the Income Tax Act 1961’s Section 80c at the time of filing your income tax return.

2. Wealth creation

ELSS mutual funds are long-term investment products that help you to increase your wealth in the long run. So that you to stay invested for the long run, ELSS schemes come with a 3-year lock-in period. If you want to get tax benefits, you have to stay invested for at least three years in the fund. In comparison to other 80C fixed-return financial instruments, ELSS mutual funds provide better long-term returns.

This means you can create your wealth much faster by investing in ELSS mutual funds than other fixed-return schemes such as SSY, PPF (Public Provident Fund), EPF (Employee Provident Fund), tax-saver fixed deposits, and others.

3. Shortest lock-in period

When compared to other 80C investment options, ELSS mutual funds come with the shortest lock-in period. ELSS has a 3-year lock-in.

In contrast, the other savings or investment options under section 80c have longer lock-in periods. For example, PPF has 15-years of lock-in. ULIP-based insurance policies with 80c benefits have a maturity period ranging from 5 years to 15 years. National Savings Certificate (NSC) has a 5-year lock-in.

High-return mutual fund categories for smart investing

Equity Mutual Funds Hybrid Mutual Funds Debt Mutual Funds
Tax Saving Mutual Funds NFO Mutual Funds Multi Cap Mutual Funds


Ever wondered how much your mutual fund could grow? Discover potential returns with our SIP return calculator and Lumpsum calculator. Estimate your investment's future value now!

How do ELSS mutual funds help you save taxes? Example

Let us try to understand it with the help of a simplistic example.

Suppose, your total yearly income is calculated to be Rs. 6 lakh. If you follow the old regime of income tax slab rates, you will have to pay at the rate of 20% on your income.

If you invested Rs. 1.5 lakh on ELSS mutual funds in a financial year, you can claim a tax reduction of up to Rs. 1.5 lakh at the time of tax filing.

After deducting Rs. 1,50,000 from your total income of Rs. 6,00,000, your net income becomes Rs. 4,50,000. In that case, your income comes in the slab ranging from Rs. 3 lakh to Rs. 5 lakh, where your tax rate is just 5%.

That is how you can claim tax benefits on your ELSS mutual funds and save taxes.

Final words

ELSS mutual funds have come up as a popular financial investment tool for saving taxes and accumulating wealth. ELSS funds qualify for tax deductions under Section 80C of the Income Tax Act, 1961 within the overall limit of Rs. 1.5 lakh. This investment tool comes with the shortest lock-in period and also encourages long-term investment. As the name suggests, ELSS (Equity Linked Savings Scheme) mutual funds expose your invested funds to the equity market. This helps you enjoy the benefits of market growth, providing you with higher returns than fixed-income assets under 80c. You should invest in ELSS mutual funds if you want to optimise your tax savings, on the one hand, and enjoy the benefits of financial growth of your investment portfolio in the long run.

Essential tools for mutual fund investors

Mutual Fund Calculator Lumpsum Calculator Mutual Funds SIP Calculator Step Up SIP Calculator
SBI SIP Calculator HDFC SIP Calculator Nippon India SIP Calculator ABSL SIP Calculator
Tata SIP Calculator BOI SIP Calculator Motilal Oswal Mutual Fund SIP Calculator Kotak Bank SIP Calculator

Frequently asked questions

Which mutual fund is eligible for 80C?
All mutual funds that are categorised as ELSS (Equity Linked Savings Scheme) are eligible for tax benefits up to Rs. 1,50,000 under the Income Tax Act’s Section 80C.
How do I get 80C certificate for mutual funds?
To take advantage of your investment in ELSS mutual funds, you should get proof of investment in ELSS scheme(s). Once you have the proof, you can avail a tax deduction of up to Rs. 1,50,000 under Section 80c at the time of filing your income tax return. Depending on how you invested in ELSS, you can get your investment proof in 3 ways: offline, online, and demat accounts. If you invested in an ELSS scheme offline (either through an advisor or distributor), you can ask them to contact the AMC to deliver your ELSS investment proof through post to your registered address. In case, you have invested through a fund house’s website or online portal, you can place your request for your account statement through email. If you invested in ELSS mutual funds through demat, you can get it through email from a repository’s website such as CAMS. Depositories also send account statements regularly.
What kind of mutual fund is tax exempt?
You can avail a tax deduction of up to Rs. 1,50,000 under Section 80c of the Income Tax Act 1961 in ELSS mutual funds.
How do I claim tax on mutual funds?
You can avail a tax deduction of up to Rs. 1.5 lakhs on ELSS mutual funds under Section 80C at the time of your tax filing. This will minimise your overall tax liability
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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

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Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

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Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.