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Understanding Tax Planning Funds

ELSS funds are a type of equity mutual funds that qualify for tax exemptions under Section 80C…

I am confused with my investments in HDFC Top 200 and HDFC Taxsaver; which one of them will provide tax exemption? I have investments in ICICI Prudential Dynamic and DSPBR Equity, someone told me I won’t get any tax exemptions in my investment in these funds. Can you please tell me all the differences between normal mutual funds and tax saver funds?
- Rajeev Jagasia

Tax planning funds, better known as ELSS (Equity Linked Savings Scheme) is a type of mutual fund which is qualified for tax exemption under Section 80C. These are equity funds with a three-year lock-in wherein the investments qualify for tax rebates and the redemption after the lock-in is tax free. HDFC Taxsaver is a tax planning fund and hence, your friend is right in pointing out that your investments in it qualify for tax deductions and redemptions are tax free at the end of the lock-in.

You will not get any tax exemptions on your investments in HDFC Top 200, DSPBR Equity and ICICI Prudential Dynamic. However, if you have opted for the dividend option in these two funds and receive dividends; it will be tax free. Likewise if your holdings in these funds are more than a year, you won’t pay any long-term capital gains. However, if the holding period is less than a year, short term capital gains will kick-in at 15 per cent.

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