Tax Query: What are the tax implications of investing in ELSS?

I invest in ELSS (Equity-Linked Savings Scheme) of mutual funds to claim tax deductions. I subscribe to the dividend option. I wish to know the tax implications on the income from an ELSS? 

At the time of investment, you claim a tax deduction under section 80C. The maximum deduction available is Rs 1.5 lakh. Do note that section 80C covers other tax-saving schemes and payments.

The dividend amount received is taxable as your income from the FY 2020-21. The dividend received until FY 2019-20 (AY 2020-21) is tax-exempt. Apart from dividend taxation, the mutual fund paying dividend should deduct tax (TDS) on dividend payments above Rs 5,000. 

The ELSS units have a lock-in period of three years and are redeemable at the end of three years or anytime later. The redemption of the ELSS is a sale, and you need to calculate capital gains tax on the same. The capital gains tax is 10% on the long-term capital gain above Rs 1 lakh.

Also Read: Tax Query: Are rental payments liable to tax deduction at source (TDS)?

I am a senior citizen. I wish to invest a lumpsum amount I recently received as maturity proceeds of earlier investments. I need a monthly interest income, and want to know the tax implications on the same?

You can consider investing in the Senior Citizens Savings Scheme (SCSS), which allows a maximum investment of Rs 15 lakh. The investment is eligible for a tax deduction up to Rs 1.5 lakh in the year of investing. The SCSS offers returns at an interest rate of 7.4% p.a. The interest is credited quarterly which gets credited to the savings account you maintain with the post office. 

You can also consider investing in the Post Office Monthly Income Scheme (MIS), which offers an interest rate of 6.6% p.a. The interest is credited monthly. The maximum investment you can make is Rs 4.5 lakh. 

The interest income from SCSS and MIS is taxable as your income, and also liable to TDS. There is a TDS only if the annual interest payment exceeds Rs 50,000. In case the tax on your estimated total yearly income is nil, you can submit form 15H to claim the interest without TDS. Separately, you can get a tax deduction up to Rs 50,000 under section 80TTB on the aggregate interest income.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in

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