ELSS in 2026: Still the Best 80C Option? (New Tax Regime vs Old Regime Guide)

By
Hemant Beniwal
-
36
What will happen to ELSS after new Direct Tax Code (DTC) ?

Last Updated on April 23, 2026 by teamtfl

“When something is important enough, you do it even if the odds are not in your favour.” – Elon Musk

I am writing this post because every tax season I receive at least a dozen messages from investors asking about ELSS: Should I invest? Is it still available? Has anything changed with the new tax regime?

ELSS is one of the most misunderstood investment categories in India – often discussed in terms of outdated regulations, half-remembered news, or incorrect comparisons with other 80C instruments. Let me clear all of it up.

⚡ Quick Answer

ELSS (Equity Linked Savings Scheme) funds are still available and fully valid under the old tax regime for Section 80C deduction up to Rs 1.5 lakh per year. Under the new tax regime (default from FY 2023-24), 80C deductions do not apply, so ELSS loses its tax advantage for those who have switched. The Direct Tax Code that threatened ELSS never became law. The 3-year lock-in applies per SIP instalment. Always choose the growth option. ELSS remains the most efficient use of 80C capacity for investors who remain in the old regime with a long equity horizon.

ELSS mutual fund guide 2026 - tax saving under Section 80C

What Is ELSS?

ELSS stands for Equity Linked Savings Scheme. It is a category of mutual fund that primarily invests in equities and qualifies for Section 80C tax deduction under the Income Tax Act. Investments up to Rs 1.5 lakh per year are eligible for deduction from taxable income.

ELSS has a 3-year lock-in period – the shortest among all 80C instruments. For comparison: PPF has a 15-year maturity, EPF locks until retirement, tax-saving FDs lock for 5 years, NSC locks for 5 years. The 3-year minimum in ELSS is genuinely short, though longer holding is both permitted and generally advisable for equity investments.

The Old DTC Scare – And What Actually Happened

In 2010-2012, there was significant concern that the proposed Direct Tax Code would remove ELSS from the Section 80C qualifying instruments. This created widespread uncertainty among investors and advisors alike.

The Direct Tax Code was never enacted. It went through multiple drafts, was extensively debated, and was ultimately abandoned. The Income Tax Act of 1961 continues to govern Indian taxation, with amendments made through annual Finance Acts. ELSS has remained a valid 80C instrument throughout this period and remains so in 2026.

What Has Actually Changed: The New Tax Regime

The real change affecting ELSS came not from DTC but from Budget 2020 and subsequent modifications: the introduction of the new tax regime, which became the default regime from FY 2023-24 onwards.

Under the new tax regime, Section 80C deductions do not apply. This means ELSS investments do not reduce your taxable income if you have opted for – or been automatically placed in – the new regime. For these investors, ELSS is still a valid equity mutual fund with a 3-year lock-in, but it has no tax advantage over any other equity fund.

Under the old tax regime, which you can still opt for, ELSS continues to provide the full 80C deduction benefit.

Old regime or new regime – the answer changes your entire 80C strategy.

RetireWise helps senior executives evaluate which tax regime is more beneficial for their specific income and deduction profile – and build the right investment structure around that decision.

See How RetireWise Approaches Tax Planning

How the 3-Year Lock-In Actually Works

This is the most commonly misunderstood aspect of ELSS. The 3-year lock-in applies per SIP instalment, not from the date of your first investment.

If you started a Rs 5,000 monthly SIP in ELSS in January 2023, the January 2023 instalment unlocks in January 2026. The February 2023 instalment unlocks in February 2026. And so on. You cannot redeem all units simultaneously after 3 years of investing – only the units that have completed their individual 3-year period become available.

For a lump sum investment, the entire amount becomes redeemable after 3 years from the date of investment – this is straightforward.

Growth vs. IDCW Option

Always choose the growth option in ELSS. Here is why: in IDCW (formerly dividend) plans, any dividend declared by the fund is added to your taxable income at your slab rate. Since ELSS is specifically chosen for its long-term equity compounding, receiving distributions that get taxed at 30% (for someone in the highest bracket) and removing them from compounding defeats the purpose entirely.

In the growth option, gains accumulate in the NAV and are only taxed as long-term capital gains (at 12.5% above Rs 1.25 lakh annually) when you eventually redeem. This tax deferral and preferential rate makes the growth option structurally superior for the purpose ELSS is intended for.

ELSS vs. PPF: Which Is Better for 80C?

This is the most common comparison, and the honest answer depends on your risk tolerance and investment horizon. PPF offers guaranteed 7.1% (current rate) with full principal and interest safety, 15-year maturity, and completely tax-free returns at maturity. ELSS offers equity returns (historically 12-15% over long periods) with market volatility risk, 3-year minimum lock-in, and gains taxed at 12.5% above the Rs 1.25 lakh threshold.

For someone with a 15+ year horizon and the ability to tolerate equity volatility, ELSS has historically delivered substantially better post-tax returns than PPF. For someone with low risk tolerance, near-retirement, or who needs certainty, PPF is more appropriate. Most professionals in their 30s and 40s benefit from maintaining both: PPF for the debt/guaranteed component of 80C and ELSS for the equity component.

Read: ELSS vs PPF – Complete Comparison

ELSS is not the right choice for everyone. But for investors in the old tax regime with a long equity horizon, it remains the most tax-efficient way to fulfil 80C obligations while building equity exposure.

Choose the right regime first. Then optimise 80C around it.

Are you in the old or new tax regime? Do you know which is more beneficial for you?

The answer determines your entire 80C strategy. RetireWise runs this calculation as part of every financial planning engagement.

Book a Free 30-Min Call

Your Turn

Are you in the old or new tax regime – and has that changed whether you are investing in ELSS this year? Share your situation in the comments. The regime decision is one many people are still confused about.

36 COMMENTS

  1. Hemant Beniwal,

    hi i am looking to buy tax saving MF with SIP and my budget in to invest 3k per month would you please suggest me for which plan should i go??

  3. Hi,

    My Age is 27 Now and My monthly income 22000. want to invest 15000 per month so that i will make my home in pune after 10 yrs. pls advise me for investment. i want invest in MF and Share Market.. pls advise for best MF Plan … or any best invest me …..pls comment

  4. Hi Hemant,

    I’ve planned to invest in SIP of Rs 1000/- in each of these funds…Could you suggest any addition or substraction from this list…Or tell me if these are okay..

    Birla Sun Life MNC Fund (G)
    HDFC MidCap Opportunities (G)
    Reliance Equity Opportunity RP (G)
    UTI MNC Fund (G)
    ICICI Pru Focused Bluechip Equpty (G)
    UTI Opportinuties Fund (G)
    ICICI Pru Discovery Fund (G)
    Quantum Long term Equity (G)
    TATA Divident Yeild Fund (G)
    ING Divident Yeild Fund (G)
    Fidelity Equity Fund (G)
    HDFC TOP 200 (G)
    SBI Dynamic Bond Fund (G)
    HDFC Balanced Fund (G)
    HDFC Prudence Fund (G)
    UTI Equity Fund (G)
    Mirae Dividend Yeild (G)
    DSP Black Rock Equity (G)
    UTI Dividend Yeild (G)
    DSP Top 100 (G)
    Franklin India Blue chip (G)

    Best regards,
    Arindam

  5. Hello Hemant,

    A treat to read this article, specifically today.
    My accounts department gave me a figure against which I have to give them provisions / my investment details for tax saving purpose.
    Your article clarifies Section 80 C in detail.

    Besides this ‘Year End Tax Planning’, this article enhances the knowledge to a level where I can do computation of tax for myself.

    Thanks for the information shared.

  6. Hi Hemant

    I started saving in ELSS since 2007 Rs 5k/month in 5 different funds via SIP. That time, I took decision on my own and identified 5 funds to invest @ Rs1k/month in each fund, surfing net, just to diversify my investment. I chose :- HDFC Taxsaver, Prudential ICICI Tax Plan, Kotak Tax Saver, Sundaram Tax Saver & SBI Magnum Taxgain. I have a plan to contiune investment for next 22 year (when I will be 57years old).
    My queries are:-
    1. Do you think I should continue to invest in 5 different funds? or look for 2-3 fund and remove 3-2 funds from my portfolil?
    2. I am assuming in next 5 years or so, my EPF will itself contribute to Rs 1Lac for 80C for tax planning purpose. At that time should I contine to invest in ELSS or should move to other open ended mutual funds?
    3. I am expecting a return of @ 15% yearly on my investment for next 22 year, is my target acheivable?

    Regards
    Hitesh

    • In my opinion you should not invest in more than 1-2 ELSS funds.

      If your 80C does not have any room then no need for ELSS, why block money unnecessarily? ELSS funds are as good as any other equity MFs.

      No one can guarantee returns on any equity investment but 15% does sound reasonable from equity investments.

  7. Hi Hemant,
    I am a salaried person, having substantial regular monthly deduction from my salary to my PF & VPF account. Additionally, I have a PPF account. Whether all these funds can be regarded as debt funds? I’ve also started investing in a few diversified MF through SIP. Please suggest whether I should invest further in ELSS. What should be the ideal ratio of debt vs equity investment in one’s portfolio? Grateful, if you clarify.

    Regards

  8. Dear Sir
    After DTC
    Iam Expecting New Sec for ELSS
    Structure is
    * 5-10 years lock in
    * Investment Limit Is 100000
    This type of Investments only can gives us good returns

  9. If ELSS is not part of 80c then there will not be any lockin period of 3 yrs, Fund Manager cannot place the money in a better way as they do with 3 yr lockin period. So the income will reduce and investment will become risky.

  10. Hi Hemant,

    Can you explain this further as to WHY – “The day that you finally came to know that ELSS is not a tax saving instrument – you can discontinue your SIP”

    Is ELSS not a good investment if it is not a Tax Saving instrument? One of your articles you had mentioned – Tax saving should be the result of your investments and not vice versa.

    The reason I am asking this is I have not invested in Equities and am one of the many who have taken up Insurance policies. I would want to invest in ELSS as a good investment tool.

    Please suggest.

    • Hi Amit,
      Read my inline reply
      Can you explain this further as to WHY – “The day that you finally came to know that ELSS is not a tax saving instrument – you can discontinue your SIP”
      >Because you will not be getting any tax benefit.
      Is ELSS not a good investment if it is not a Tax Saving instrument? One of your articles you had mentioned – Tax saving should be the result of your investments and not vice versa.
      >ELSS is a great investment but why to lock funds when there is no tax benefit. One can invest in any diversified equity fund.
      The reason I am asking this is I have not invested in Equities and am one of the many who have taken up Insurance policies. I would want to invest in ELSS as a good investment tool.
      >Go Ahead 🙂

      • Thanks Hemant,

        I am looking for an investment of 5-7 years.

        After reading Ankur’s post if I am still investing in ELSS for a period mentioned would it be a good option?

        I will be investing through SIP for a period of 3 yrs and then leave the amount to grow (hopefully) and redeem it after another couple of years.

        Please suggest.

        Thank you.

  11. I have a question regarding ELSS, Suppose I have a folio of ELSS mutual fund on my spouse name and I pay to buy the units. Can I claim this on my 80c ? or it will be my spouse 80c.

      • Hi Hemant thanks for the reply,
        I have another Q, I was surfing through the internet and came across Time Deposit of Post office, the time duration for the deposit are 1yr, 2yr, 3yr, 4yr and 5yr. but I am not sure weather we can claim tax benefit for 1,2,3 and 4 yrs under 80c.
        Any idea?

  12. Hi Manish,

    To add to what Hemant n Anil said..most of the people here who have joined TFL have all had bad times with LIC and other insurance policies with myself included. So the people who have experienced it are the ones who are going to share with the other people who are new to the investments or insurance so that at least those people do not make the same mistake that others did..This is what TFL is all about. Its a learning curve for everyone who are looking to plan their investment, insurance and to summarize its a complete financial planning guide. One should thank people like Hemant who is Certified Financial Professional n is giving lot of free advice to the people about financial planning..

  13. why u r so much against ulip or for say insurance, it seems u.had some bitter encounter with LIC , KINDLY MARK THE WORD LIC.
    elss. no doubt is a Gud option but at the same time ulips. n other insurance. products have their own importance . seen customers visiting insurance offices at their late 40’s and 50’s seeking life cover with Gud returns. why ? go ask elss to cover for whole life and give financial security to family through the same. COME ON DEAR , TRY TO SEE THE BRIGHTER SIDE.

    • Hi Manish,
      Hope you are not LIC agent – as you are stressing too much on LIC.
      Forget what you have read here on TFL – do your independent research & you will know the reality. Just to add Mr Hariharan (Chairman IRDA) has accepted that insurance industry is not selling insurance.

    • Hi Manish
      You should not confuse insurance with investment. Insurance is an expense which one has to incur to cover risk.Investment is done for creating wealth. Any product which mixes insurance with investment is a very expensive product. Only informed persons can understand this. Since most persons have very little awareness of financial matters it is not surprising that many people buy ULIP products which only create wealth for the agents at the cost of investors.

  14. Hi Hemant,

    Very nice article..You mentioned here about NPS.. But to my knowledge the returns of NPS are taxable and PFRDA is trying hard with govt to exempt the tax. Is that true?

  16. Hi Hemant,

    u said that ELSS is a one time investment, so no need to worry for tax rebate. just wanted to clear, what if someone has opted the ELSS SIP. like m investing 2K/month in an ELSS, then would it be considered for tax exemption afte DTC also.

    • Hi Prashant,
      It doesn’t make any difference that you are investing through SIP or onetime. The day that you finally came to know that ELSS is not a tax saving instrument – you can discontinue your SIP.

  17. Hi Hemant
    Many investors invest in ELSS funds via SIP route just like in diversified equity funds. However as there is a lock in period of three years, many financial planners advise that to avoid complications at the time of redemption it is better to make lump sum investments in these funds. What is your take on this?

    • Hi Anil,
      I don’t agree with people who say ELSS by SIP route is a bad idea – I am not sure why people want redemption exactly on completion of three years.

      • Hi Hemant
        I also feel that investment in ELSS funds should be treated just like investment in any diversified equity fund with investment horizon of more than five years. In any case in all other tax saving instruments investment horizon is more than three years.

  18. Hi Hemant,

    Nice explanation.

    You have raised doubts which are still hovering investors mind.Infact at one of the workshop recently, i happen to meet HR person.He raised a query-ELSS is better or PPF? Now i was amazed to see teh comparison as these are apple and oranges.The only similarity is tax benefit.However, he wanted to hear from me that ELSS is a bad investment.Probably, he has some investment which were not doing well.

    The main reason for these queries, i believe, is investing in ELSS only for tax benefit and not understanding the equity environment.At the end of he tunnel, it i s still an equity exposure where markets can play with you in short term.However, most of us are investing with an objective to redeem after three years, any how.And when markets are not in favor like now, the same investment goes in the BAD BOOKS.I suppose this one should be looked at more than 3 years horizon during investment.

    • Hi Jitendra,
      In your point there are 2 important things related to investor behaviour:
      First is Confirmation Bias – that guy want a confirmation from you that PPF is better than ELSS.
      Second is Recency Effect – Benjamin Graham Said that investors can only count till 3 so if something has happened for 2-3 years (negative or positive), they think this will be repeated in near future. 🙁

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