Funds seek CBDT clarification on ELSS

The mutual fund sector has sought clarification from the Central Board of Direct Taxes (CBDT) regarding the status of equity linked savings schemes (ELSS) in the changed tax scenario.

The 2005-06 Budget announcements had placed equity linked savings schemes among the list of instruments eligible for the Rs 1 lakh investment amount, which will be deducted for computation of tax.

The sector wants to know whether this applies to existing schemes or whether new schemes which will be launched. Further the association has also sought clarifications on the lock-in for such schemes.

At present, ELSS has a lock-in of three years after which transactions can take place in the units.

Other instruments that are eligible for investments under the Rs 1 lakh limit include public provident funds (which have a lock-in of 15 years) and post office savings schemes and national savings certificates, both of which have lock-ins of six years. There are some apprehensions that the lock-in for such schemes might get extended.

Incidentally ELSS is the only equity product eligible for investments according to the Budget announcement.

Sources in the mutual fund industry said, "We are waiting for the Finance Bill to be passed."

However, before that the CBDT is expected to come out with its own clarifications, so far as the direct tax proposals are concerned, as these are more or less final and too many modifications are not expected.

Incidentally ELSS are set to be much sought after products now. HSBC Mutual Fund, which does not have any kind of tax saving schemes in its portfolio, is planning to launch one in the near future.

Industry sources said that after the budget announcement ELSS are getting a makeover with funds pushing the product with extra vigour, while brokerage rates for such schemes have nearly doubled.