---
title: How do I save tax using ELSS funds?
description: "You can save tax by investing in **ELSS (Equity Linked Savings Scheme)** mutual funds under **Section 80C of the Income Tax Act**if you are filing taxes under the old tax regime. ELSS funds are one of the most popular tax-saving…"
url: "https://arafinserv.com/fa/taxation-and-financial-planning/how-do-i-save-tax-using-elss-funds/"
updated: "2025-11-20"
category: Taxation and Financial Planning
---

# How do I save tax using ELSS funds?

You can save tax by investing in **ELSS (Equity Linked Savings Scheme)** mutual funds under **Section 80C of the Income Tax Act**if you are filing taxes under the old tax regime. ELSS funds are one of the most popular tax-saving options for Indian investors because they combine **tax benefits**, **wealth creation**, and the **shortest lock-in period** among all 80C investments.

**How ELSS Helps You Save Tax**

1. **Tax Deduction up to****₹****1,50,000 (Under Old Tax Regime)**
   You can claim a deduction of up to **₹****1.5 lakh per financial year** under Section 80C by investing in ELSS.
   This can reduce your tax outgo by up to **₹****46,800**, depending on your tax bracket.
2. **Shortest Lock-In of 3 Years**
   ELSS has a **3-year mandatory lock-in**, the lowest among 80C options like PPF (15 years), NPS (till retirement), and tax-saving FDs (5 years).
3. **Potential for Higher Returns**
   Since ELSS primarily invests in equities, it has the potential to generate **higher long-term returns** compared to traditional tax-saving instruments.
4. **Option to Invest via SIP**
   You can invest in ELSS through **SIPs**, making tax planning easier and spreading your investment through the year.
5. **Taxation on Redemption**
   ELSS redemptions after 3 years are treated as **long-term capital gains (LTCG)**.
   - Gains up to **₹****1,25,000 per year** are **tax-free**.
   - Gains above that are taxed at **12.5% + cess**.

**Validity Under Old vs. New Tax Regime**

- **Old Tax Regime:**
  ELSS investments **qualify** for Section 80C deductions, making them a powerful tax-saving tool.
- **New Tax Regime:**
  Section 80C deductions **are not available**, so ELSS does **not** provide any tax-saving benefit under this regime.

**Why ELSS is Popular for Tax Saving**

- Combines tax benefit + equity growth
- Helps in long-term wealth creation
- Ideal for young earners and first-time investors
- Suitable for SIP-based, goal-oriented financial planning

ELSS is a smart way to save tax and build wealth—especially under the **Old Tax Regime**.

Since tax rules are dynamic and subject to change, we recommend consulting your tax advisor for the latest and detailed guidance.