Is it possible to break 3-year lock in period in ELSS ? Have a look

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Unit Linked Savings Plans (ELSS) are equity-oriented Mutual Fund (MF) schemes that not only give investors a superior long-term return but also provide tax benefits under Section 80C of the Income Tax Act, up to the present maximum of Rs 1.5 lakh in a fiscal year.

Gains from ELSS investments up to Rs 1 lakh on redemptions made within the fiscal year are also tax-free. The capital gain tax of 10% is levied on gains above Rs 1 lakh.

ELSS is one of the most popular tax-saving schemes among investors because of the tax benefits and the potential for a higher long-term return.

However, ELSS has a 3-year lock-in period since they qualify for tax deductions under Section 80C, which is the lowest among tax-saving investments.

As a result, an investor may redeem the units on any business day, subject to the conclusion of a three-year lock-in period from the date of unit allotment, as provided by the ELSS guidelines.

“The Equity Linked Savings Plan, 2005 governs ELSS investing and lays out the procedure and requirements for participation in the plan. Furthermore, investments in ELSS are allowable as a deduction from taxable income for income tax purposes under Section 80C of the Income Tax Act of 1961 up to Rs 1,50,000, subject to certain criteria. One such constraint is that investments in ELSS are subject to a three-year lock-in term from the date of ELSS unit issuance. The ELSS units can only be redeemed, transferred, assigned, or pledged after the three-year lock-in period expires,” said Dr. Suresh Surana, Founder of RSM India.

However, as a result of the ongoing Covid-19 pandemic, investors are concerned about their assets and are wondering what will happen to them when they die. One of these concerns is whether nominees must wait three years after an investor’s death to redeem their ELSS units.

A nominee or legal heir, on the other hand, does not have to wait three years and may redeem the units after one year from the date of allotment of units to the deceased unitholder, subject to the Asset Management Company’s approval (AMC).

“To provide relief to nominees in the event of the death of the original investor, Rule 3 of the Equity Linked Savings Scheme, 2005 allows the nominee or legal heir to redeem the investment before the three-year lock-in period expires, but only after completing one year from the date of allotment to the original investor”, Dr. Surana explained.

Furthermore, the Trustee of an AMC maintains the right to adjust the lock-in term prospectively from time to time if the ELSS criteria on the lock-in period are amended.

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