Income tax news: Is the dividend reinvested under ELSS scheme eligible for deduction under section 80C?

I have invested in an ELSS scheme under the Dividend Reinvestment Plan. Does the reinvestment of dividends qualify for a rebate under Sec 80C?

Yes. The dividend reinvested is treated as a fresh investment in the ELSS. Therefore, it is eligible for deduction u/s 80C within the overall limit of ₹1.50 lakh during the financial year the dividend gets reinvested. The money doesn't need to be debited from your bank account to claim a deduction under Section 80C regarding ELSS.

Understanding ELSS

Please note that each reinvested dividend will have a further lock-in of 3 years. The dividend so reinvested is taxable in your hands in the year it is reinvested, even if you have not received the dividend amount in your bank account.

I would advise you to opt for the growth option of ELSS instead of the dividend option. If you need money, opt for the dividend pay-out option instead of the reinvestment option, where the money automatically gets invested without you having any say. It is always advisable to receive the dividend and reinvest it in the best option available at that particular time rather than having to invest in the same scheme, which may or may not be performed during the relevant time. Moreover, the reinvestment plans subject your investment to a never-ending loop because each dividend reinvested gets locked in for another three years.

Please note that the benefit under Section 80C is available if you opt for the old tax regime, and it is not available under the new tax regime, which is the default option.

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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.

Disclaimer: The views and recommendations above are those of individual analysts and not Mint. We advise investors to check with certified experts before making any investment decisions.