Last date for tax break via ELSS is tomorrow

Synopsis

Section 80C ELSS mutual fund: Investment in ELSS mutual funds are eligible for tax benefit under Section 80C in the old tax regime. However, for ELSS mutual fund investment to be eligible for tax break for current financial year 2023-24, the investment must be done between April 1, 2023 and March 31, 2024.

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According to the Securities and Exchange Board of India (Sebi)’s guidelines, money should be credited to the mutual fund bank house for an investment to be considered done.

Individuals opting for the old tax regime in the financial year 2023-24 should ensure that their tax-saving investments and expenditures are completed by March 31, 2024. But the deadline falls on a Sunday this year. So, what’s the last date to invest for an individual who wants to invest in ELSS mutual funds to claim tax benefit under Section 80C?

An individual investing in an ELSS (Equity linked savings scheme) mutual fund scheme using apps on the phone or through internet banking will find that the investment money is usually debited from the bank account instantly and credited to the mutual fund house bank account.

Remember that banks are working this Saturday (March 30, 2024) on account of it being the fifth Saturday of the month. However, banks are closed on Friday (March 29, 2024) for Good Friday. Further, stock markets are also closed this Friday; and Saturday and Sunday as usual. As stock markets are closed, therefore, mutual fund houses are also scheduled to be closed on these three days.

Also Read: How to invest in ELSS mutual funds online

Shivansh Dandona, Head-Investment Management, FinEdge, says, “For units to be allocated under an ELSS mutual fund, the purchase transaction needs to happen when the stock market is open. In this case, despite the amount being credited to the mutual fund’s bank account, the units will only be allocated on the next working day of the stock market – April 1, 2024, in this case. Consequently, the investment would not qualify for tax benefit under Section 80C for the current financial year, 2023-24. Ideally, to meet this requirement of tax benefit in an ELSS mutual fund, the investment should be done at least 2-3 days before the last working day (in the financial year) of the stock market.”

According to the Securities and Exchange Board of India (Sebi)’s guidelines, money should be credited to the mutual fund bank house for an investment to be considered done. Further, there are cut-off timings before which an investor has to submit a valid purchase or redemption request to be eligible for a particular day’s NAV.

This is because mutual funds are market-linked investments. The investments are made either in equity, debt or any other specified asset, and each market has fixed opening and closing hours. The NAV of a scheme is based on the market value of the underlying portfolio of that asset and, thus, highly correlated with the market prices. So, to be eligible for a particular day’s NAV, the fund manager of the mutual fund scheme needs to be aware of the amount that needs to be purchased or sold as per the settlement period and trading timing of the markets. This also largely helps in ensuring that all classes of investors get the same treatment irrespective of their quantum of investment.

Also read: Why tax saving investments must be finished before March 31

Timings to get same day NAV in mutual fund

Sebi guidelines specify that to get the same day’s NAV for the mutual fund units being purchased, the investment money should be credited to the mutual fund’s account before 3 PM on the day the capital market (stock market or debt market) is open.

Here is an example to understand this. Suppose an individual makes an investment via UPI in a mutual fund scheme. The money is credited to the mutual fund house’s bank account before 3 PM. In this case, the individual will be eligible for the same day’s NAV. However, if the money reaches the bank account of the mutual fund after 3 PM, the individual will get the NAV of the next working day.

Bandhan Mutual Fund says 29, 30 and 31 of March 2024 are non-business days for mutual fund houses. Therefore, it is important that money reaches it before 3 PM on March 28, 2024, to make sure an ELSS mutual fund investment qualifies for Section 80C tax break for 2023-24.

The arrangements mutual fund houses have with banks for receipt of such money will vary. It is advisable to check with the chosen mutual fund house before starting the investment process. Therefore, if investing in ELSS mutual fund scheme, complete the process as soon as possible to avoid such last-minute hassles.

Roy Walsh

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