You may not get Sec 80C tax benefit despite investing in ELSS by Mar 31; here's why

As we approach the financial year-end, some investors might still be looking for last minute tax saving options under Section 80C of the Income Tax Act. While the last date for investing in tax saving mutual funds or Equity Linked Savings Schemes (ELSSs) is usually March 31, it is likely to be curtailed this year, owing to the new rules regarding Unit Allotment, which came into effect from February 1, 2021.

As per the new rules guiding Unit Allotment in mutual funds, all mutual funds can only allot units to investors after they receive an applicant's subscription money in their respective Scheme Collection Account. This has led to different applicants/ investors receiving their units on different dates and at different Net Asset Values (NAVs), based on the bank from which they are making the payment.

Investors must be mindful of the time or number of days their bank takes to send the money to the mutual funds. Otherwise, if the money reaches the mutual fund account after March 31, it will be counted as a tax saving investment for the next financial year i.e., 2021-22 and not the current financial year.

For instance, PPFAS Mutual Fund has sent a note to its customers via email stating the same. "In case of PPFAS Mutual Funds, subscription amounts in case of Parag Parikh Tax Saver Fund related purchases via net banking in four banks viz. Axis, HDFC, ICICI and State Bank of India, reach the Collection Account in 'real-time'. Hence, you have the flexibility of investing closer to the cut-off time of 3:00 PM on March 31, 2021 if desired."

In case of banks other than these four, assuming you purchase prior to 3:00 PM, the money will reach PPFAS collection Account on the second working day after you subscribe (T+1). In case you purchase after 3:00 PM it will reach us on the second working day (T+2), adds the mutual fund company in its e-mail communication to its investors.

In case of purchases undertaken via United Payment Interface (UPI), assuming you purchase prior to 3:00 PM, money usually reaches the AMCs on the next working day (T+1), irrespective of the bank from which you make the payment.

Moreover, the banking system will not function on March 29, 2021 on account of Holi. Investors need to plan their purchase accordingly. They may check with the respective AMCs to confirm their purchases.

An investment of Rs 1.50 lakh under Section 80C of the IT Act allows an investor to save taxes maximum upto Rs 46,800 assuming s/he falls in the 30 per cent income tax bracket.

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