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Here Is How To Claim Tax Benefits In Mutual Funds

Adhil Shetty


Apart from being a high-yielding return investment instruments, mutual funds also double up as an effective tax saving instrument under I-T Section 80C. However, not all mutual fund schemes qualify for this. Only tax saving schemes, generally known as Equity Linked Saving Scheme or ELSS offer tax rebate to individuals. Claiming tax rebate through mutual funds is no different than any other tax saving instruments like PPF, NSC or Life Insurance.

Here is how you can claim tax benefits in mutual funds.

Before you understand how tax is claimed, it is important to understand a few important terms. When you invest in different mutual funds schemes, you either hold the units for a short-term or long-term. A holding period of a year or more than a year for equity mutual funds or equity-oriented balanced funds is considered long-term. For debt mutual funds, this holding period becomes 36 months or more. A holding period less than the specified time is regarded as short-term.

It is important to note that ELSS comes with a lock-in period of three years, which implies you cannot redeem the units before the end of three years. This year budget has re-introduced long term capital gains (LTCG) for ELSS. So, after three years of redemption, your LTCG over Rs. 1 lakh will be taxed at the rate of 10% without the indexation benefit.

a) Opt For Tax-Saving Mutual Funds:

Go for only MFs which are ELSS to reap benefits of tax rebate. Other MF schemes do not let you have tax benefits. There is a general perception that all MFs (irrespective of categories) offer tax rebate, which is not true.

b) Either Start An SIP Or Lump Sum Investment In ELSS:

You can invest in a tax saving Mutual Fund in two ways – either do it systematically every month by way of an SIP or you can put in a larger sum in one or more goes. Doing an SIP in tax-saving MF scheme is, however, a preferable idea. This helps you remain planned and takes away the last minute tax planning tension.

c) Investments Made Only In A Financial Year Counts For Tax Benefits:

Do remember, tax benefits pertain to a single financial year which applies on tax saving mutual funds as well. All your investments in ELSS in one financial year (1st April to 31st March) only will be taken into consideration for tax related rebates. You can show your statement of investment (through SIP or lump sum) during the specific financial year at the time of declaring your investments for tax rebate.

d) Investments Till A Maximum of Rs. 1.5 Lakh In Mutual Funds Qualify For Tax Rebate:

There is no limit for you to invest in tax saving mutual funds in a financial year. However, you will get tax benefits only for a maximum of Rs. 1.5 lakh per financial year under section IT Sec 80C.

e) Submit MF Investment Statements For Declaring Your Investments

Every year during February-March, you tend to submit all your investment statements to avail tax rebate. It would include statements of PF, Insurance Premiums and National Saving Certificates (NSCs). If you are investing in Tax Saving MFs also, you can show the statement of the same as well.

The writer is CEO, BankBazaar.

BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.