Hi,
Any amount contribute to ELSS from the date of switching to ELSS is only eligible for Deduction u/s 80C. This is because to claim 80C Deduction, the amount should be invested out of the taxable income earned in the relevant previous year
Shift to ELSS from growth fund not considered for tax benefit
I had some previous mutual fund investments in growth fund which i shifted to ELSS scheme without redeeming for investment purpose for FY 2015-16. I asked my mutual fund manager, they say a switch is as good as new purchase or redeeming and purchasing new, however my employer says a lateral shift to ELSS can not be considered for tax benefit. My question is if my funds are getting locked for next 3 years, why should i not get tax benefit?? Is it some rule that a shift to ELSS from growth funds can not be considered for tax benefit?
Asked 7 years ago in Income Tax
My date of switching is Dec 2016. I think you did not understand what i asked. I am asking i had previous investments which i switched to ELSS scheme that got locked for 3 years in Dec 2016. Should i get tax benefit or not?? According to my employer if i would have redeemed and invested, they would have been considered for tax benefit but since I shifted my funds they are not being considered for tax benefit by my employer.
Asked 7 years ago
Hi,
In my opinion, your employer is right. To get tax benefit u/s 80C, you have to actually invest the amount out of amounts taxable in the previous year. When you switch from Growth Fund to ELSS, the amount is not invested out of the Income of FY 2016-17. So, not eligible for tax benefit u/s 80C.
ELSS is an Exempt-Exempt-Exempt (EEE) investment. So, you will get all the benefits of ELSS whenever you redeem the fund units after the lock-in period.
Most growth funds are Equity-oriented (65% or more amount invested in Equities). In that case, Long-term capital gains were exempt. You could have very well redeemed units older than 12 months and re-invested the same in ELSS.
Where is it written that your investments should be from your current year income??? you can invest your previous savings also. Don't you re-invest your matured FD to claim tax benefit. Same is the case here. The savings in growth funds were my savings. Now it is upto me how i want to invest it. What is the logic here i am not getting it??? Also refer this discussionhttp://www.caclubindia.com/experts/switch-over-of-mutual-fund-to-tax-saving-elss-914520.asp
Asked 7 years ago
Hi,
Yes. Thanks for pointing out.
Section 80C does use the words "Paid or deposited". So, you may claim deduction u/s 80C for entire amount transferred to ELSS as you have subscribed to ELSS in FY 2016-17. However, in that case, all the units held for less than 12 months before the transfer (in the Growth Fund, assuming it is an Equity Oriented Fund) may be liable to short-term capital gains tax at 15% (Since the units are deemed to be redeemed and reinvested).
Kindly check with the Fund or your stock broker once in this regard
Dear Sir,
In my opinion, you can very well claim the deduction u/s 80C for the switch over. Even if your employer doesn't allow, you can calim this while filing your ITR.
Please feel free to call/ revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
Hello Sir,
The shift that you have made from your mutual fund to ELSS is a tax saving measure. Though it is not invested out of your free funds but it still an investment per se. So you need not worry about it.
Worst case scenario if your HR does not allow you to claim the benefit and deducts TDS, you can claim the amount wrongly deducted as Refund, at the time of filing of return.
What appears to be more interesting here is when did you buy the mutual funds you have transferred, if that was bought 12 months before the date of transfer, then you will be liable to pay Short Term Capital Gain @ 15%, if there is a gain at all.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, ACA, LLB-GEN, CERT. FAFP
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