InvestorQ : Is it true that the ELSS benefits will also be extended to the CPSE ETFs issued by the government?
ishika Banerjee made post

Is it true that the ELSS benefits will also be extended to the CPSE ETFs issued by the government?

Answer
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Niti Shenoi answered.
1 year ago


The government has announced that in the budget. Currently, ELSS funds are eligible for exemption under Section 80C subject to a maximum ceiling of Rs.1.50 lakhs at an overall level. The budget had announced that the benefit of ELSS may also be extended to the CPSE ETF, which the government has been using as one of its key disinvestment vehicles. That means the tax exemption will also be available on CPSE ETF but that will also be subject to a lock in period of 3 years like in the case of ELSS, to ensure that only serious long term investors get the tax benefit. The tax exemption reduces your effective investment and increases your return on investment and that could make the CPSE ETFs very attractive.

For example, if you invest Rs.10,000 in the CPSE ETF and the ETF appreciates by 40% over 3 years, then the value becomes Rs.14,000. Let us assume that you are in the 20% tax bracket. Now when you invest Rs.10,000 you get a tax exemption of Rs.2,000 (ignore cess) and so that means your investment is effectively only Rs.8,000. That means: your investment of Rs.8,000 has appreciated to Rs.14,000 in 3 years and the 3 year return is 75% and not 40%, as it would have been without the tax benefit. It could really make the CPSE ETF very attractive for low risk investors.