ELSS means equity linked savings scheme. SEBI describes it as a diversified equity mutual fund. At least 80% of the corpus is in equity and equity-related instruments. Each unit is locked for 3 years from the day it is allotted. A SIP locks every instalment on its own date. You cannot redeem the January units in March just because you need the tax proof.
The tax deduction is section 123 of the Income-tax Act, 2025, read with Schedule XV, paragraph 1(m). That was section 80C. It shares the ₹1,50,000 cap with PPF, employee PF, life-insurance premium and the principal of a housing loan. Money put into ELSS above that cap is still invested. It is not deducted again. Section 202, the new regime, does not allow section 123. An ELSS bought only for the deduction does nothing for tax if you stay in the new regime. It remains a three-year equity investment.
The lock-in is not a tax exemption on the way out. After 3 years the gain is still taxed when you sell. Units held more than 12 months, which the lock almost guarantees if you wait for it to end, are section 198: 12.5% above ₹1,25,000 of long-term equity gain in the year, plus cess. The ₹1,25,000 is shared with your other equity sales that year. It is not a private allowance for the ELSS.
The return is market-linked. Nobody notifies an ELSS rate the way the Finance Ministry notifies PPF at 7.1%. A factsheet return is history. A SIP projection is a rate you type.
A worked example
The SIP engine can project a monthly ELSS the same way it projects any monthly equity fund. ₹10,000 a month for 15 years at 12% invests ₹18,00,000 and estimates ₹50,45,760. Tax if you sell in one year is ₹4,06,330. That projection ignores the lock, so do not treat year 1 as redeemable. The first instalment is locked for 3 years. The deduction, if you are in the old regime, is capped at ₹1,50,000 a year no matter how large the SIP is.
On salary of ₹15,00,000, claiming that ₹1,50,000 in the old regime produces taxable income of ₹13,00,000 and a bill of ₹2,10,600. The new regime on the same salary ignores the ELSS and bills ₹97,500. The regime calculator is the comparison. The PPF, ELSS and NPS guide puts the lock next to PPF’s tax-free maturity.
Mistakes people make
- Buying ELSS in March for a deduction, then filing the new regime.
- Thinking the 3-year lock makes the gain tax-free.
- Assuming a SIP has one maturity date.
- Putting ELSS, PPF and PF each up to ₹1,50,000. The cap is shared.
- Comparing last year’s ELSS return with PPF’s 7.1% as if both were promises.
The section
Section 123, Schedule XV, paragraph 1(m) (this was section 80C). The lock and the 80% equity floor are in the Equity Linked Savings Scheme notification that SEBI’s investor note follows. The sale is section 198 (this was section 112A). The section 123 guide lists the rest of the basket.
Questions
Does ELSS save tax in the new regime?
No. The deduction is section 123, and section 202 does not allow it. An ELSS bought only for the deduction does nothing for tax if you stay in the new regime. The units are still an equity investment, with equity-fund tax when you sell.
When does the three-year lock end on a SIP?
Each instalment is locked for 3 years from the day those units are allotted. The first month’s units can be free while the last month’s units are still locked. A SIP does not have one lock date.
Is the maturity tax-free?
No. After the lock, a sale is still a capital gain. Units held more than 12 months use section 198: 12.5% above ₹1,25,000 of long-term equity gain in the year, plus cess.
Sources
Figures checked 28 Oct 2026.