You May Not Get Tax Deduction Benefit Even If You Invest In ELSS By March 31, 2021: Here’s Why?

Other than facilitating wealth generation, ELSS or equity linked savings saving are popular among individuals for their tax deduction benefit extended as part of Section 80C. But now even if you make the investment under the avenue by March 31, 2021, you may or may not get 80C tax advantage. Here's detailed the reason in lieu of it:
Unit Allotment Rule In Mutual funds

Now the whole issue lies behind this new 'unit allotment rule' in mutual funds that came into force from February 1, 2021.

As per this new unit allotment rule, MFs have been directed to issue units only after they receive subscription money from investors in their respective Scheme collection account. And for this reason investors have been allotted units of the mutual fund at different dates and at different NAV depending on the bank from which they are making the payment towards mutual fund subscription.

Now to get the tax deduction benefit for your investment in ELSS against the FY 2020-21, you need to ensure that your bank transfers the money to the chosen mutual fund by at max March 31, 2021, this is any payment post this date to the mutual fund shall imply this investment to be a tax saving investment for the next fiscal year 2021-22.

As an example: Say for the Parag Parikh Tax saver fund payment made via these 4 banks namely Axis Bank, HDFC Bank, ICICI Bank and SBI reaches the mutual funds' collection account in real time. So investor has the flexibility to invest in the scheme near to the cut off time of 3 pm as on March 31, 2021, if the need be. For payment made before 3 pm from any other bank other than these specified banks, payment to the collection account shall be remitted in T+1 day. And in case the payment is made after 3 pm, it shall reach the mutual fund on T+2 day i.e. the second working day.

If the payment is effected via UPI assuming that you make the payment before 3 pm, money shall reach the fund house on the next working day i.e. T+1. This is irrespective of the account from which the payment is made.

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