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Tax Deductions and Lock-In Period

The earlier version of this answer was not correct, this is the amended version

I had invested in BSL Tax Relief 96 and Sundaram Tax Saver in 2009 only as an investment and not for tax saving. I have not declared my investment in these funds to claim deductions. I want to redeem units in these funds. Can I redeem it before the three year lock-in mandated for such funds?
- R. Mukundan

The earlier version of this answer was not correct, this is the amended version.

In theory, if you make investments in ELSS funds and you later discover that you were not liable to pay tax, then you may redeem your investments within the lock-in period. This would involve getting a certificate to the effect from the tax authority and then approaching the fund for redemption. We are not sure how easy or difficult this may prove in practice and whether the tax authorities and the AMCs have the processes in place to actually do this.

Practically speaking, investments in ELSS funds are compulsorily locked in for three years. These funds are designed solely for tax-savings and you should avoid using them for non-tax-related investments.

The only other situation where early redemption is permissible is in case the investor passes away during the lock-in period. Again, this would involve showing proof of the fact to the tax authority and the AMC.



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