Want to save for your child's education? Learn how to claim tax deductions on Equity-linked Savings Scheme

Equity-Linked Savings Scheme (ELSS) is the only mutual fund category eligible for Section 80C deduction. Investments qualify up to ₹1.5 lakh per year under the old tax regime with a 3-year lock-in from each investment date. On redemption after lock-in, long-term capital gains on equity are taxed at the prevailing LTCG rate after the annual exemption threshold notified by CBDT. ELSS is ideal for long-horizon goals like child's education due to its short lock-in and equity exposure.

Priyanka Wadhera

Published: 3 Feb 2023

Updated: 16 May 2026

3 min read

Equity-Linked Savings Scheme (ELSS) is the only mutual fund category that qualifies for Section 80C deduction under the Income-tax Act. With its 3-year lock-in being the shortest among all Section 80C instruments and its potential for equity-style real returns over a long horizon, ELSS is uniquely suited for parents saving for a child's higher education — a goal that is typically 10 to 18 years away. For FY 2026-27, understanding the deduction mechanics, the post-2023 LTCG tax regime, and SIP strategy will help you make ELSS the cornerstone of your education corpus.

Features of ELSS

Mutual fund schemes that invest at least 80 per cent in equity and equity-related instruments per SEBI regulations.
Lock-in period of 3 years from each investment date.
No upper limit on investment; Section 80C cap of ₹1.5 lakh applies.
Available as lump sum or Systematic Investment Plan (SIP).
Open-ended funds with daily NAV-based investment and post-lock-in redemption.
Dividend option (now called IDCW) and growth option available.

Section 80C deduction on investment

ELSS investments qualify for deduction under Section 80C up to ₹1.5 lakh per financial year, aggregated with other 80C instruments. The deduction is available only under the old tax regime. For salaried taxpayers, you can claim ELSS through your employer's TDS declaration. For SIP investors, only the SIPs falling within the financial year qualify — each SIP instalment is a separate investment with its own 3-year lock-in clock.

Tax treatment on redemption

On redemption after the 3-year lock-in, gains are taxed as Long-Term Capital Gains (LTCG) on equity. Following the Finance Act 2024-26 capital gains restructure, LTCG on equity-oriented mutual funds beyond the annual exemption threshold notified by CBDT is taxed at the prevailing LTCG rate (currently around 12.5 per cent without indexation for FY 2026-27, per current rate notifications). The first slice of LTCG up to the annual exemption is tax-free, making ELSS materially more efficient than fully taxable instruments.

Why ELSS for child's education

Child's education timelines are typically 10-18 years from birth. Over such horizons, Indian equities have historically delivered real returns meaningfully above inflation, fixed deposits, and PPF — though with intermediate volatility. The 3-year lock-in is short enough that you can route SIPs through ELSS even from the early years and gradually shift to safer instruments closer to admission. The Section 80C benefit reduces the effective cost of saving in the year of investment.

SIP strategy for a 15-year goal

Estimate the target corpus needed in inflation-adjusted terms.
Use a return assumption of 11-13 per cent CAGR for ELSS over 10+ year horizon, with sensitivity analysis.
Start an SIP of an amount that fits within your ₹1.5 lakh 80C budget if you have other 80C exposures.
Choose direct plans for lower expense ratios; pick funds with consistent rolling-return track record over 7-10 years.
Review allocation annually; rebalance from ELSS to debt funds in the last 3 years before admission to lock in gains.
Reinvest any windfalls into the same fund to maintain the SIP discipline.

Reporting in the ITR

Claim ELSS investments in the financial year under Section 80C, within ₹1.5 lakh aggregate. On redemption, report LTCG under Capital Gains schedule of the ITR (ITR-2 or ITR-3 as applicable). The CAMS or KFin statement of gains and the AIS pre-filled data simplify reporting. Apply the annual LTCG exemption threshold before tax computation.

Conclusion

ELSS is the sharpest weapon in the old-regime taxpayer's 80C arsenal for long-horizon goals like a child's education. Combine the upfront tax deduction with multi-year equity compounding, and you create a powerful corpus-building engine. Under the new tax regime, the 80C benefit disappears, but ELSS still earns equity returns on a 3-year lock-in — evaluate it on yield merit if you have moved to the new regime.

Frequently Asked Questions

What is the lock-in period for ELSS?

ELSS has a lock-in period of 3 years from the date of each investment. This is the shortest lock-in among all Section 80C instruments. For SIP investors, each instalment has its own 3-year lock-in clock — the first SIP becomes liquid first, the second instalment three months later, and so on.

How much can I save in tax with ELSS?

ELSS investments qualify for Section 80C deduction up to ₹1.5 lakh per year, aggregated with other 80C instruments. For a taxpayer in the 30 per cent slab, this can save up to ₹46,800 in tax per year, available only under the old tax regime. Long-term gains are also taxed at concessional rates after the annual LTCG exemption.

How are ELSS gains taxed on redemption?

Gains on ELSS redemption after the 3-year lock-in are taxed as Long-Term Capital Gains on equity. The annual LTCG exemption notified by CBDT applies first; the balance is taxed at the prevailing LTCG rate without indexation. Short-term gains within lock-in are not possible because ELSS units cannot be redeemed before 3 years.

Should I invest in ELSS under the new tax regime?

Under the new tax regime, the Section 80C deduction on ELSS is not available, so the tax advantage is lost. ELSS still earns equity returns and remains a valid long-horizon investment for a child's education, but evaluate it purely on yield, risk, and lock-in fit rather than tax benefit.