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Will Budget 2012 make ELSS ineligible for tax deductions?

Equity Linked Savings Schemes, better known as ELSS, may soon be on their way out of investors' lists if the government decides to introduce new direct tax regulations. According to a report in the Business Standard, investors hoping to save for the long term while bagging tax benefits through equities may find ELSS an option no longer under the Direct Tax Code (DTC).

 Will Budget 2012 make ELSS ineligible for tax deductions?

The proposed DTC has reduced the number of investment options available under Section 80C.

The proposed DTC has reduced the number of investment options available under Section 80C. Currently, you can claim a tax deduction of up to Rs 1 lakh under various instruments like Employee Provident Fund, Public Provident Fund (PPF), New Pension Fund, five-year tax-savings deposits, National Savings Certificates (NSC) and ELSS among others. But if DTC is introduced from the next financial year, investors will no longer be able to invest in ELSS and get tax deductions.

That will be unfortunate because ELSS, over time, has given superior returns vis-a-vis its peers under Section 80C.

Financial planners are also not pleased with the possible change. Sadique Neelgund, a certified financial planner, told Business Standard: "Investments under Section 80 C are intended to help individuals build a retirement corpus. An equity component works best for this."

That fact is also proven in a study by Fidelity Worldwide Investment on the long-term performance of ELSS. The results, quoted by an Indian Express story, clearly show that ELSS returns, on average, have been better than PPF/NSC in 58 out of the 61 time periods; they also show that the average five-year annualised performance of ELSS funds was about 26 percent compared with the average PPF return of 8.32 percent and NSC's return of 8.59 percent.

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Updated Date: Dec 20, 2014 17:02:39 IST