ELSS: What are income tax implications for switching from dividend option?
Premium- The investment made by switching from one plan of ELSS to other plan of ELSS is treated as fresh investments for tax purposes.
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PremiumQ: If I switch my existing ELSS tax saving scheme to the same tax saving scheme from dividend option to growth option, can I claim tax benefit under Section 80 C for the amount switched?
Answer: Equity Linked Saving Scheme popularly known as ELSS are eligible for deduction under Section 80C up to Rs. 1.50 lakh together with other eligible items and have a lock in period of three years. So you will be able to switch your investments in ELSS only if you have completed three-year mandatory lock in period.
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1 min read . 07:30 AM ISTThe investment made by switching from one plan of ELSS to other plan of ELSS is treated as fresh investments for tax purposes. Therefore you will be eligible for deduction under Section 80 C for the amount so switched.
Please note that the switching from one scheme to another is treated as redemption as far as the old scheme is concerned for tax purposes. Any profits made on redemption of equity oriented scheme made after one year is treated as long term capital gains. ELSS are treated as equity oriented schemes. Since the units are switched after three years the profits are treated as long term capital gains. You will have to pay tax on the difference between the cost of the units switched and the amount switched to new scheme. You are entitled for an initial exemption for such long term capital gains and beyond which the long term capital gains are taxed at flat rate of 10% without any indexation benefit. The initial exemption is to be computed with reference to all the long term capital gains realised during the year on listed shares and equity oriented schemes on which security transaction tax (STT) has been paid.
The writer is a tax and investments expert and can be reached at jainabalwant@gmail.com
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