ELSS in 2026: Is a Tax-Saver Fund Still Worth It Under the New Regime?
Last updated: 13 October 2026
Quick answer: ELSS funds still give a deduction of up to ₹1.5 lakh, now under Section 123 of the Income-tax Act, 2025, but only if you choose the old tax regime. Under the default new regime (Section 202) there is no deduction, so an ELSS is just a diversified equity fund with a 3-year lock-in. It still makes sense for old-regime taxpayers with deductions above roughly ₹5.5–8 lakh.
Last updated: 13 October 2026 Quick answer: ELSS funds still give a deduction of up to ₹1.5 lakh, now under Section 123 of the Income-tax Act, 2025, but only if you choose the old tax regime. Under the default new regime (Section 202) there is no deduction, so an ELSS is just a diversified equity fund with a 3-year lock-in. It still makes sense for old-regime taxpayers with deductions above roughly ₹5.5–8 lakh. Key takeaways Deduction: up to ₹1.5 lakh a year under Section 123 (old Section 80C), old regime only. Lock-in: 3 years, counted separately for every SIP instalment. Break-even: a salaried person earning ₹15 lakh needs about ₹5.44 lakh of deductions before the old regime wins; at ₹25 lakh+ it is ₹8 lakh. Tax saved: up to ₹46,800 a year at the 30% old-regime slab (with cess). Size: open-ended ELSS assets were ₹2,30,662 crore in September 2026, with net outflows of ₹662 crore that month (AMFI). For two decades, the March scramble for an ELSS fund was a ritual for salaried Indians. The pitch was simple: the shortest lock-in among tax-saving options, equity returns, and a deduction that could save up to ₹46,800 a year. Then the new tax regime became the default, the Income-tax Act, 2025 came into force on 1 April 2026, and the ritual stopped making sense for many people. AMFI data shows the shift. In September 2026, open-ended ELSS funds collected ₹1,088 crore but paid out ₹1,750 crore in redemptions, a net outflow of ₹662 crore. Yet the category still manages over ₹2.3 lakh crore across 1.6 crore folios. This guide explains how ELSS works under the new law, how to calculate whether the old regime still suits you, and what to do with ELSS money if it does not. What is an ELSS fund, and what changed in 2026? An Equity Linked Savings Scheme (ELSS), now called "ELSS – Tax Saver Fund" in SEBI's categorisation, is an open-ended equity mutual fund that must keep at least 80% of its assets in equity. It follows the Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance, and every unit carries a 3-year lock-in. SEBI's circular of 26 February 2026 on categorisation and rationalisation of mutual fund schemes kept the ELSS definition unchanged: minimum 80% equity, open-ended, following the 2005 scheme. SEBI also allows passive ELSS, an index fund that tracks an index of stocks drawn from the top 250 companies by market capitalisation, under its May 2022 circular on passive funds. The bigger change is in tax law. The familiar Section 80C deduction is now Section 123 of the Income-tax Act, 2025 (https://www.incometaxindia.gov.in/w/section-123-96) . It still allows individuals and HUFs a deduction of up to ₹1,50,000 for the items listed in Schedule XV of the Act. The cap is the same; the numbering and some wording changed. For the wider picture of what was renumbered, see our guide to the new Income-tax Act 2025 for individual investors (/insights/income-tax-act-2025-changes-individuals) . Why the new regime makes ELSS a plain equity fund The new regime under Section 202 (https://www.incometaxindia.gov.in/w/section-202-78) is the default. It computes income without most deductions and exemptions, including the Section 123 deduction (the old 80C). In exchange, it offers lower slab rates, a ₹75,000 standard deduction for salaried people and a rebate that makes taxable income up to ₹12 lakh tax-free. So if you file under the new regime, investing ₹1.5 lakh in ELSS saves you exactly ₹0 in tax. What remains is an equity fund that you cannot touch for three years. Feature Old regime (opted in) New regime (default, s.202) ELSS deduction (s.123) Up to ₹1.5 lakh, shared with EPF, PPF, insurance etc. Not available Standard deduction (salary) ₹50,000 ₹75,000 Zero-tax income level ₹5 lakh taxable (rebate) ₹12 lakh taxable (rebate); about ₹12.75 lakh salary Top rate starts at ₹10 lakh ₹24 lakh Home-loan interest on self-occupied house Up to ₹2 lakh Not available Health insurance (old 80D) Available Not available Tax on ELSS gains Same in both: LTCG 12.5% above ₹1.25 lakh a year Old vs new regime: how much in deductions makes ELSS worth it? The real question is not "Is ELSS good?" but "Will I stay in the old regime?" That depends on how much you can deduct in total. We calculated the break-even for a salaried individual below 60 for tax year 2026-27, using the slab rates in Section 202, the old-regime slabs, the standard deductions and 4% cess. Surcharge is ignored, so treat the top band as approximate. Chart of ELSS new tax regime break-even: deductions needed for old regime to win at salaries of 12.75 to 25 lakh rupees Gross salary Tax: new regime Tax: old regime with ₹1.5 lakh deductions Tax: old regime with ₹5.5 lakh deductions Break-even deductions ₹12.75 lakh Nil ₹1,40,400 ₹49,400 ₹7.25 lakh ₹15 lakh ₹97,500 ₹2,10,600 ₹96,200 ₹5.44 lakh ₹18 lakh ₹1,50,800 ₹3,04,200 ₹1,79,400 ₹6.42 lakh ₹20 lakh ₹1,92,400 ₹3,66,600 ₹2,41,800 ₹7.08 lakh ₹25 lakh ₹3,19,800 ₹5,22,600 ₹3,97,800 ₹8.00 lakh ₹30 lakh ₹4,75,800 ₹6,78,600 ₹5,53,800 ₹8.00 lakh "Deductions" here means everything you can claim beyond the ₹50,000 standard deduction in the old regime: Section 123 (up to ₹1.5 lakh), home-loan interest (up to ₹2 lakh), health insurance premiums, HRA exemption, NPS self-contribution and so on. Notice that ₹5.5 lakh of deductions still loses at ₹18 lakh and above. Three salaried profiles from Pune Rohan, 29, ₹15 lakh, renting in Baner. His EPF already fills about ₹86,000 of Section 123. HRA exemption is about ₹2.4 lakh and 80D-type health premium ₹25,000. Total deductions are roughly ₹4.6 lakh, below the ₹5.44 lakh break-even. Even after topping up ₹64,000 in ELSS, he reaches about ₹5.2 lakh. The new regime is cheaper, so ELSS adds no tax value. Priya, 38, ₹22 lakh, home loan in Wakad. Home-loan interest ₹2 lakh, Section 123 full at ₹1.5 lakh (EPF plus principal repayment), health cover for herself and senior parents ₹75,000, NPS ₹50,000. Total ₹4.75 lakh, well short of the roughly ₹7.54 lakh she would need at ₹22 lakh. New regime wins, and ELSS would not change that. Suresh, 45, ₹18 lakh, older home loan plus HRA for a city posting. HRA ₹3 lakh, home-loan interest ₹2 lakh, Section 123 ₹1.5 lakh, health ₹50,000. Total ₹7 lakh, above the ₹6.42 lakh break-even. He stays in the old regime, so whatever gap remains in his ₹1.5 lakh limit is worth filling, and ELSS is one sensible way to do it. For a fuller walk-through of regime choice, see our tax planning guide for FY 2026-27 (/insights/tax-planning-guide-india) and home loan tax benefits under old and new regimes (/insights/home-loan-tax-benefits-old-new-regime) . How much tax does ELSS actually save in 2026? If you are in the old regime and your Section 123 limit has room, the saving equals the gap filled multiplied by your marginal rate plus cess. Filling the whole ₹1.5 lakh saves ₹46,800 at the 30% slab, ₹31,200 at 20% and ₹7,800 at 5%. Most salaried people in the old regime are in the 20% or 30% bands. Bar chart of ELSS tax saving under Section 123: nil in the new regime, up to ₹46,800 at the 30% old-regime slab Many people overestimate the gap. EPF contributions, life insurance premiums, children's tuition fees and home-loan principal all count towards the same ₹1.5 lakh. Someone with a basic salary of ₹60,000 a month already contributes ₹86,400 a year to EPF. Check your Form 16 or salary slip before investing anything for tax. Does the ELSS 3-year lock-in apply to every SIP? Yes. Each purchase, including every monthly SIP instalment, is locked for three years from its own allotment date. A SIP started in April 2026 will have its April 2026 units free in April 2029, its May units in May 2029, and so on. The last instalment of a three-year SIP becomes free only around six years after you started. Two practical consequences follow. First, ELSS cannot double as an emergency fund or short-term goal fund. Second, a lump sum early in the year gives a cleaner single unlock date, while a SIP spreads both your entry price and your exit dates. If you plan to redeem for a goal, map the unlock calendar first. What happens when the lock-in ends? Nothing happens automatically. Units stay invested and keep the same NAV movement. You can redeem, switch or simply hold. Because the lock-in is longer than 12 months, every ELSS redemption is a long-term capital gain: taxed at 12.5% on gains above ₹1.25 lakh a year across all your equity assets (Section 198 under the new Act). Our guide to capital gains tax on mutual funds in 2026 (/insights/capital-gains-tax-mutual-funds-2026) covers the details. Is ELSS worth it under the new tax regime? Without the deduction, judge an ELSS exactly as you would a flexi-cap fund. The portfolio rules are similar: an ELSS can hold large, mid and small caps, and most are managed as diversified multi-cap portfolios. The differences are the lock-in and, in some cases, cost and manager discretion. A lock-in is not always bad. Research on investor behaviour, such as Morningstar's annual "Mind the Gap" study, consistently finds that investors' own returns trail their funds' returns because of badly timed buying and selling. A forced three-year hold can stop you from selling in a panic. But you can achieve the same discipline with a regular flexi-cap or index fund and an automatic SIP, while keeping access in a genuine emergency. Comparison of ELSS, PPF and a flexi-cap equity fund on returns, tax deduction, lock-in and taxation When ELSS can still make sense for a new-regime taxpayer You may switch regimes. Salaried people without business income can choose the regime each year while filing. If a home purchase or higher HRA could move you to the old regime next year, an existing ELSS SIP keeps that option alive. You already hold ELSS units. There is no need to redeem the moment the lock-in ends just because the tax benefit is gone. Review them like any equity holding. When to skip it You are firmly in the new regime with no realistic path to the old one. You need the money within five years. Your Section 123 limit is already full through EPF, PPF, insurance or loan principal. ELSS vs PPF, NPS and other Section 123 options If you stay in the old regime, ELSS is only one way to fill the ₹1.5 lakh limit. The right choice depends on what your overall portfolio needs, not on which product saves the most tax, because they all save the same tax. Option Lock-in Return type Tax on returns Best used for ELSS 3 years per instalment Market-linked equity LTCG 12.5% above ₹1.25 lakh Equity allocation, 5+ year goals PPF 15 years (partial withdrawal later) Government-set rate, reviewed quarterly Tax-free Long-term safe debt EPF / VPF Till retirement, with conditions EPFO-declared rate Interest taxable above contribution limits Retirement debt 5-year tax-saver FD 5 years Fixed Interest taxed at slab Low-risk, short horizon NSC 5 years Fixed, set quarterly Interest taxed at slab Low-risk, post office savers Term/life insurance premium Policy term Protection Depends on policy Cover, not investment A sensible approach: decide your equity-to-debt split first, then fill Section 123 with whichever product matches the gap. If you are under-invested in safe debt, PPF does the job. If you already have enough debt through EPF, ELSS adds equity. We compare these head to head in PPF vs ELSS vs SIP (/insights/ppf-vs-elss-vs-sip-which-tax-saving-investment-actually-wins-in-2026) and our complete PPF guide (/insights/ppf-complete-guide) . Note that the employer's NPS contribution (the old Section 80CCD(2) deduction) remains available in the new regime. For many employees, asking HR to route part of the CTC through employer NPS is the one tax lever left in the new regime. See NPS vs mutual funds (/insights/nps-vs-mutual-funds-complete-comparison-guide) . How to choose an ELSS fund if you still need one Money n Wealth does not recommend specific schemes in articles, but the screening process is the same as for any diversified equity fund. AMFI listed 39 open-ended ELSS schemes in September 2026, so there is plenty of choice. Check rolling returns, not point returns. Compare 3- and 5-year rolling returns against the benchmark and the category. Our SIP fund shortlisting framework (/insights/how-to-shortlist-sip-funds-2026) shows how. Look at downside behaviour. How did the fund fall in 2020 and in the 2024-26 mid and small-cap correction? Compare expense ratios. Direct plans cost less; passive ELSS index funds are usually cheapest. Over a 3-year lock-in, a 0.5% cost gap adds up. Check portfolio style. Some ELSS funds lean large-cap, others carry a third or more in mid and small caps. Make sure it fits the rest of your portfolio. Avoid duplicating holdings. If your flexi-cap fund already owns the same top 20 stocks, an ELSS adds little diversification. Four-step framework to decide whether ELSS still makes sense under the new tax regime What other countries do with tax-advantaged equity accounts The UK's Individual Savings Account (ISA) shelters gains from tax with no lock-in. The US 401(k) and IRA give deductions or tax-free growth but penalise early withdrawal. ELSS sits in between: an upfront deduction, a short lock-in and taxable gains on exit. India's new regime follows the global drift towards lower rates and fewer product-linked deductions, which makes ELSS a tool for a shrinking group of old-regime taxpayers. Related reading Tax planning for salaried families (/insights/tax-planning-salaried-families-india) PPF vs ELSS vs SIP: which tax-saver wins in 2026 (/insights/ppf-vs-elss-vs-sip-which-tax-saving-investment-actually-wins-in-2026) Section 80D health insurance deductions (/insights/section-80d-health-insurance-deduction) Flexi cap funds explained (/insights/flexi-cap-funds) Step-up SIP: how a 10% annual increase changes your corpus (/insights/step-up-sip-calculator-guide) Frequently Asked Questions Can I claim ELSS under the new tax regime in 2026? No. The ELSS deduction falls under Section 123 of the Income-tax Act, 2025 (the old Section 80C), which is not allowed when income is computed under the new regime in Section 202. You can claim it only if you opt for the old regime for that tax year. Salaried taxpayers without business income can make this choice each year when filing the return. What is the lock-in period for ELSS? Three years from the date each unit is allotted. For a SIP, every instalment has its own three-year lock-in, so a three-year SIP becomes fully free only about six years after the first instalment. After the lock-in, you can hold, switch or redeem. There is no automatic redemption at the end of the lock-in. How much tax can I save with ELSS? Up to ₹46,800 a year if you are in the old regime's 30% slab and invest the full ₹1.5 lakh, including 4% cess. At the 20% slab the saving is ₹31,200. But the ₹1.5 lakh limit is shared with EPF, PPF, life insurance, tuition fees and home-loan principal, so your actual room may be smaller. Should I stop my ELSS SIP if I moved to the new regime? Not automatically. Ask whether you need equity exposure and whether a lock-in suits you. If you want flexibility and have no chance of returning to the old regime, you can redirect future instalments to a regular diversified or index fund. Existing units stay locked until each completes three years, and you do not need to redeem them afterwards. How are ELSS returns taxed? Because the lock-in exceeds 12 months, all ELSS gains are long-term. They are taxed at 12.5% on total equity long-term gains above ₹1.25 lakh in a tax year. Dividends (IDCW) are added to your income and taxed at your slab rate, which is why growth options suit most investors. Is ELSS better than PPF for tax saving? They save the same tax, so compare them on what they add to your portfolio. ELSS is equity with market risk and a 3-year lock-in. PPF is government-backed debt with a 15-year term and tax-free returns. Most old-regime investors use both: PPF for the safe part and ELSS for the growth part. What is the old vs new regime break-even for a salaried person? On our calculations for tax year 2026-27, a person earning ₹15 lakh needs about ₹5.44 lakh of deductions beyond the standard deduction before the old regime wins. At ₹20 lakh the figure is about ₹7.08 lakh, and from ₹25 lakh upwards it is about ₹8 lakh. Run your own numbers before investing for tax. Sources: Income Tax Department: Section 123, Income-tax Act 2025 (https://www.incometaxindia.gov.in/w/section-123-96) ; Income Tax Department: Section 202 (new regime) (https://www.incometaxindia.gov.in/w/section-202-78) ; AMFI: SEBI categorisation of schemes (https://amfiindia.com/investor-corner/knowledge-center/SEBI-categorization-of-mutual-fund-schemes.html) ; SEBI circular on categorisation, 26 Feb 2026 (https://www.sebi.gov.in/sebi_data/attachdocs/feb-2026/1772079826878.pdf) ; AMFI monthly data, September 2026 (https://portal.amfiindia.com/spages/amsep2026repo.pdf) ; SEBI circular on development of passive funds, May 2022 (https://www.sebi.gov.in/sebi_data/attachdocs/may-2022/1653307308174.pdf) ; Sundaram MF Tax Reckoner 2026-27 (https://www.sundarammutual.com/pdf2/TaxReckoner/Tax_Reckoner_2026_27.pdf) ; Morningstar, Mind the Gap (https://www.morningstar.com/lp/mind-the-gap) . Worked examples are Money n Wealth calculations. Not sure which tax regime suits you this year? The answer depends on your salary structure, loans and family cover, and it can change year to year. Talk to Money n Wealth (/contact) for a free portfolio review and regime check. This article is for general educational purposes only and does not constitute financial advice. Figures and examples are illustrative. Please consult a qualified financial adviser for guidance specific to your situation. Money n Wealth (Predics Fintech Services Pvt Ltd) is an AMFI-registered Mutual Fund Distributor (ARN-121995) and APMI-registered PMS Distributor (APRN07444); it is not a SEBI-registered investment adviser and may earn distribution commission on investments made through it.
Frequently Asked Questions
Can I claim ELSS under the new tax regime in 2026?
No. The ELSS deduction falls under Section 123 of the Income-tax Act, 2025 (the old Section 80C), which is not allowed when income is computed under the new regime in Section 202. You can claim it only if you opt for the old regime for that tax year. Salaried taxpayers without business income can make this choice each year when filing the return.
What is the lock-in period for ELSS?
Three years from the date each unit is allotted. For a SIP, every instalment has its own three-year lock-in, so a three-year SIP becomes fully free only about six years after the first instalment. After the lock-in, you can hold, switch or redeem. There is no automatic redemption at the end of the lock-in.
How much tax can I save with ELSS?
Up to ₹46,800 a year if you are in the old regime's 30% slab and invest the full ₹1.5 lakh, including 4% cess. At the 20% slab the saving is ₹31,200. But the ₹1.5 lakh limit is shared with EPF, PPF, life insurance, tuition fees and home-loan principal, so your actual room may be smaller.
Should I stop my ELSS SIP if I moved to the new regime?
Not automatically. Ask whether you need equity exposure and whether a lock-in suits you. If you want flexibility and have no chance of returning to the old regime, you can redirect future instalments to a regular diversified or index fund. Existing units stay locked until each completes three years, and you do not need to redeem them afterwards.
How are ELSS returns taxed?
Because the lock-in exceeds 12 months, all ELSS gains are long-term. They are taxed at 12.5% on total equity long-term gains above ₹1.25 lakh in a tax year. Dividends (IDCW) are added to your income and taxed at your slab rate, which is why growth options suit most investors.
Is ELSS better than PPF for tax saving?
They save the same tax, so compare them on what they add to your portfolio. ELSS is equity with market risk and a 3-year lock-in. PPF is government-backed debt with a 15-year term and tax-free returns. Most old-regime investors use both: PPF for the safe part and ELSS for the growth part.
What is the old vs new regime break-even for a salaried person?
On our calculations for tax year 2026-27, a person earning ₹15 lakh needs about ₹5.44 lakh of deductions beyond the standard deduction before the old regime wins. At ₹20 lakh the figure is about ₹7.08 lakh, and from ₹25 lakh upwards it is about ₹8 lakh. Run your own numbers before investing for tax.
Not sure which tax regime suits you this year?
The answer depends on your salary structure, loans and family cover, and it can change year to year. Talk to Money n Wealth for a free portfolio review and regime check.
