9.6 Tax Benefit under Section 80C and Applicability of GST

ELSS and Section 80C

An Equity Linked Savings Scheme (ELSS) is the only mutual fund category qualifying for deduction under section 80C of the Income-tax Act.

The Regime Point Is Now the Most Important One

Since the new tax regime became the default, section 80C deductions — including for ELSS — are not available to an investor who remains in the new regime. Only investors who opt for the old regime can claim the deduction.

This has changed how ELSS should be discussed. Recommending ELSS "to save tax" without first establishing which regime the investor is in is a real mis-selling risk: the investor accepts a three-year lock-in and receives no deduction whatever.

The correct sequence is:

1. Ask which regime the investor is in, or intends to choose
2. If the new regime, ELSS carries no tax advantage — it is simply an equity fund with a lock-in, and an ordinary flexi cap fund is more flexible for the same exposure
3. If the old regime, check how much of the INR 1.5 lakh limit is already consumed by provident fund contributions, life insurance premiums, principal repayment on a home loan, tuition fees and similar items
4. Recommend ELSS only for the genuinely unused headroom

An investor whose employee provident fund contribution alone exhausts the INR 1.5 lakh limit gains nothing from further ELSS investment, whichever regime applies.

The Lock-In Works Per Instalment

The three-year lock-in runs from each investment's own date, not from the date the scheme was first entered.

For a monthly SIP into ELSS, this means:

Instalment of April 2026   -> free from April 2029
Instalment of May 2026     -> free from May 2029
Instalment of March 2027   -> free from March 2030

An investor who has run an ELSS SIP for three years cannot redeem the whole holding on the third anniversary — only the instalments that have individually completed three years. Redemption follows first-in, first-out, so the earliest units become available first. Explaining this at the outset avoids a difficult conversation later.

Comparing ELSS with Other 80C Options

ELSS has the shortest lock-in of the mainstream 80C options and the only fully equity-linked return. Both features cut in the same direction: higher expected return, higher volatility, shortest commitment. That is the honest comparison, and it depends entirely on the investor being in the old regime.

Goods and Services Tax

GST applies at 18% to services supplied to a mutual fund scheme.

There is no GST on an investor's purchase or redemption of units. GST applies to the services rendered to the scheme, and reaches the investor only indirectly through the expense ratio.

Where GST Now Sits in the Expense Framework

This changed on 1 April 2026. Under the revised framework:

• The regulatory cap is the Base Expense Ratio, which excludes statutory levies including GST
• GST, along with STT, CTT, stamp duty, SEBI fees and exchange fees, is charged on actuals over and above permissible brokerage limits
• Total Expense Ratio is the sum of BER, brokerage, regulatory levies and statutory levies

Under the earlier framework GST sat inside the single TER cap and therefore competed with management costs for room beneath it. It now sits outside the cap, and the cap itself was reduced to compensate. A candidate who learned the older position should note the change specifically: GST is no longer within the expense ratio ceiling.