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MF taxation

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sameer dba

23 Points Posted on 26 April 2024

Hi, For FY 2024-25 i need to plan my tax (for old-regime) so i want to redeem my previous ELSS MF and move it to a liquid MF, then after scheduled days to retain amount in liquid MF, i want to invest in the same ELSS MF. How will i be taxed in the year end for redemption to liquid fund and reinvest in an ELSS MF.

Replies (3)

Quick Summary

This discussion clarifies the tax treatment when redeeming an ELSS mutual fund (Equity Linked Savings Scheme) and reinvesting in the same or another fund. The key takeaway is that ELSS funds have a 3-year lock-in period. Upon redemption after this period, any gains are subject to Long Term Capital Gains (LTCG) tax at 10% if they exceed ₹1 lakh. Moving funds to a liquid fund temporarily before reinvesting in ELSS will trigger Short Term Capital Gains (STCG) tax on the liquid fund portion, calculated as per your income tax slab rates.

Vishal Manakshe

178 Points Posted on 26 April 2024

Hello
The ELSS MF does not allow you to withdraw the funds till 3yrs.

In case, your funds or units are eligible for withdrawal then it will be treated as LTCG (Equity) and will be taxed at the rate of 10% above Rs. 1 lac

there will be no taxation at the time of investing or purchasing any MF

Further, liquid funds are considered as Debt funds, therefore for STCG, tax will be calculated as per slab rates.

sameer dba

23 Points Posted on 27 April 2024

Thanks Vishal for the update. so i'll have to pay STCG (as per tax slab)for redemption to liquid fund from ELSS fund. Then, in case the ELSS fund is above 1L then 10% LTCG is applicable. is my understanding correct?

Aashok Kumar Sharma

Finance/Compliance Consultant

75651 Points Posted on 08 November 2026

Redeeming ELSS and reinvesting for 80C:
• Old ELSS units (after the 3-year lock-in) can be redeemed. LTCG (held more than 12 months) is taxed at 12.5% above Rs 1.25 lakh a year (FY 2024-25 onwards). Reinvesting the proceeds into fresh ELSS gives a fresh 80C deduction (old regime) of up to Rs 1.5 lakh.
• This "recycling" is legitimate: LTCG within Rs 1.25 lakh is tax-free, and the reinvestment gives 80C.
• Watch exit loads (none for ELSS after lock-in).