The ₹12 lakh zero-tax threshold: does ELSS still earn its lock-in?

Budget 2025 rewrote the new tax regime's slabs and raised the rebate so that income up to ₹12 lakh pays no income tax. For a salaried person, the ₹75,000 standard deduction lifts that to ₹12.75 lakh of salary.

The new regime is also now the default. That has quietly changed the case for one of the most popular March purchases in India, the ELSS tax-saving fund.

The slabs

Because of the rebate, anyone with taxable income up to ₹12 lakh pays nothing, even though the slabs above ₹4 lakh have rates.

Why ELSS lost its main argument

ELSS was popular because it was one of the few ways to get the old regime's ₹1.5 lakh deduction (the one that also covers PPF, EPF and life insurance premiums) through equity.

The new regime doesn't allow that deduction. So if you're on the new regime, which is now most salaried people, putting money into ELSS saves you no tax at all.

A worked example at ₹15 lakh

Take a salary of ₹15 lakh, with the full ₹1.5 lakh deduction claimed through ELSS and ₹25,000 through health insurance in the old regime, and no HRA or home loan.

Even with ELSS fully claimed, the old regime costs this person over a lakh more. For people in this position, the deduction no longer decides anything.

The old regime can still come out ahead for someone with large HRA claims or home-loan interest. That's a calculation worth doing properly once a year, not a habit to repeat every March.

So is ELSS still worth holding?

ELSS is still a diversified equity fund. Without the tax deduction, judge it the way you'd judge any equity fund, with one extra point:

• The three-year lock-in is now a cost, not a trade. You used to accept it in exchange for a deduction. Without the deduction, you're giving up liquidity for nothing in return, compared with a flexi-cap fund holding similar stocks.
• Some people value the lock-in for discipline. If not being able to redeem is what keeps you invested through a fall, that's a real benefit. Just be honest that this is the reason.
• Existing ELSS units don't need to be sold. Once each instalment's three years are up, it behaves like any other equity holding, and selling it just to tidy up can create capital gains tax for no reason.

A tax deduction was ELSS's best argument. Without one, it competes with every other equity fund on what it holds and what it costs.

The short version

1. Up to ₹12 lakh of income (₹12.75 lakh of salary) is tax-free under the new regime.
2. The new regime doesn't allow the ₹1.5 lakh deduction, so ELSS saves no tax there.
3. Choose the regime on the full numbers first. Then choose funds on their merits.