Does switching ELSS from dividend to growth qualify for Section 80C tax benefit?

ELSS Taxation

• Switching ELSS to growth after 3 years qualifies for Section 80C benefit
• Switched amount is treated as a fresh investment for tax deduction purposes
• 12.5% tax on long-term capital gains over Rs 1.25 lakh, no indexation

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Wondering whether switching an ELSS from dividend to growth after the three-year lock-in qualifies for a Section 80C tax benefit? Today’s Ask Wallet Wise explains how the deduction works and how the resulting capital gains are taxed.

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If I switch my existing ELSS tax-saving scheme from the dividend option to the growth option, can I claim a tax benefit under Section 80 C for the switched amount?

Expert's Advice: Equity Linked Saving Scheme, popularly known as ELSS, is eligible for deduction under Section 80C up to Rs 1.50 lakh together with other eligible items, and has a lock-in period of three years. So you will be able to switch your investments in ELSS only if you have completed a three-year mandatory lock-in period.

The investment made by switching from one plan of ELSS to another plan of ELSS, even of the same fund house, is treated as a fresh investment for tax purposes. Therefore, you will be eligible for a deduction under Section 80 C for the amount so switched.

Please note that the switching from one plan to another plan, even of the same scheme of the fund house, is treated as a redemption as far as the old scheme is concerned for tax purposes. Any profits made on redemption of equity-oriented schemes after one year are 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 the new scheme.

Initial long term capital from equity schemes and listed shares taken together up to Rs. 1.25 lakh are taxed at zero rate, thus effectively tax-free in your hands and beyond which the long term capital gains are taxed at a flat rate of 12.50 percent without any indexation benefit.