Rs 1.5 lakh (+ Rs 500 more) required to get full Rs 1.5 lakh ELSS tax benefit

If you invest Rs 1.5 lakh in tax-saver ELSS funds in a financial year, chances are that you will not get the full tax benefit on the invested amount of Rs 1.5 lakh.

Why so?

It is because from July 2020, any investments in equity mutual funds going forward will attract a stamp duty of 0.005%. So any amount you invest in equity funds via lumpsum or SIP mode will result in a levy of stamp duty of 0.005%, which will then reduce the net amount invested.

Let’s say you invest a lumpsum of Rs 1.5 lakh in an ELSS scheme. Now after the 0.005% stamp duty, i.e. Rs 7.5, the actual invested amount will be Rs 1,49,992.50.

In the case of ELSS SIP of Rs 12,500 per month for 12 months, i.e. Rs 1.5 lakh, once again 0.005% stamp duty will be applicable on each SIP installment. So your SIP of Rs 12,500 will be reduced to Rs 12,499.375. Over 12 months, this again translates to Rs 1,49,992.50 (Rs 12,499.375 X 12), which is Rs 7.5 short of the Rs 1.5 lakh upper limit of tax benefit via ELSS funds under Section 80C.

Though its still not clear whether the amount deducted as stamp duty will be eligible for deduction under section 80C of the Act or not, it might be a good idea to invest a little more than Rs 1.5 lakh in ELSS funds if you are only considering ELSS funds for getting your full Rs 1.5 lakh tax benefit under Section 80C. I asked a few CA friends and they said that to be on the safer side, it’s better to claim the deduction for the net amount investment amount in the ELSS scheme after excluding the stamp duty amount.

But what if you want to claim the full Rs 1.5 lakh tax benefit and not just the adjusted (for stamp duty) amount of Rs 1,49,992.50?

In that case, you need to invest slightly more.

How much more?

Mathematically, it should be around Rs 1,50,008 – Rs 1,50,009, which when levied with 0.005% stamp duty will result in an exact Rs 1.5 lakh net amount being invested in the ELSS scheme.

But most AMCs don’t allow you to invest very small amounts like Rs 8 or Rs 10. Right? So way out might be to invest the minimum possible additional amount, over and above the Rs 1.5 lakh investment. This amount is generally Rs 500 or in multiples of Rs 500.

So if you are doing a lumpsum investment, you need to invest Rs 1.5 lakh + Rs 500 = Rs 1,50,500 in ELSS funds.

On the other hand, if you are doing a SIP, then there are two options. Either you do a SIP of Rs 12,500 + Rs 500 = Rs 13,000 per month. This will mean investing Rs 1.56 lakh in the ELSS scheme, which is allowed (as there is no upper limit on the amount you can invest in ELSS schemes in a year) but the tax benefit will be capped at Rs 1.5 lakh. The other option is to keep doing Rs 12,500 monthly SIP in ELSS fund and in one of the months during the years, just invest an extra Rs 500 in the scheme as lumpsum. This will push to total to slightly above Rs 1.5 lakh and take care of the stamp duty issue.

Further Reading on ELSS Funds:

This is just a small mathematical anomaly that most people don’t need to be really worried about. As most people have other tax-saving investments like EPF, PPF, NPS, and life insurance premiums that along with ELSS fund investments are pretty much to exhaust the Rs 1.5 lakh tax-saving limit of Section 80C.

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