How to Do Tax Free SIP?

What is a Tax-Free SIP?

A Tax-Free SIP is systematically investing in an Equity Linked Savings Scheme (ELSS mutual fund) every month. The ELSS fund qualifies for the following:

• Tax deduction up to ₹1.5 lakh per year under Section 80C.
• Tax-free long-term capital gains (LTCG) up to ₹1.25 lakh every year.
• A 3-year lock-in period for each SIP installment.

Tax Rules on SIPs 2025-26

*Certain debt-like funds reclassified and taxed at slab rates for investments on or after 1 April 2025.

ELSS SIP Example 2025

• Mr. Rajesh invests ₹12,500 monthly in SBI ELSS starting Apr 2022.
• At 3 years, his corpus of ₹4.5 lakh grows to ₹6.3 lakh through this investment plan.
• He gains ₹1.8 lakh, but each SIP is locked in separately.
• He gets LTCG exemption of ₹1.25 lakh and gains above this limit are taxed at 12.5%.

Why Choose ELSS SIP for Tax-Free Investment?

An ELSS SIP offers several advantages that make it one of the best tax-saving investment options in 2025. It helps you build wealth while reducing your taxable income.

• Dual benefit: Enjoy both tax savings and long-term wealth growth.
• High potential returns: Earn around 12–15% annually over the long term through equity exposure.
• Low starting amount: You can start investing from just ₹500 per month.
• Encourages discipline: The 3-year lock-in period promotes consistent and long-term investing habits.

Top ELSS Mutual Funds in 2025

Choosing the right ELSS fund is key to maximizing returns. Here are some of the best-performing ELSS mutual funds in India based on their latest returns and performance.

How to Start Your Tax-Free SIP?

You can follow these steps to do a tax- free SIP:

Step 1: Choose a good ELSS fund from trusted AMCs.
Step 2: Start a monthly SIP (₹12,500/month gives ₹1.5 lakh yearly).
Step 3: Stay invested for at least 3 years to enjoy full tax benefits.
Step 4: Redeem after 3 years only if necessary; otherwise, stay invested longer for better returns.

Benefits of Tax-Free SIPs

Investing in a tax-free SIP helps you save tax while building long-term wealth. Here are some key benefits you can enjoy in 2025:

• Save up to ₹46,800 in taxes every year under Section 80C as per the Income Tax Act in 2025.
• Earn tax-free long-term capital gains (LTCG) up to ₹1.25 lakh per year, as per the latest 2025 tax rule.
• Grow wealth through compounding and equity market growth over the long term.
• Encourage disciplined and goal-based investing with regular contributions.
• Enjoy better post-tax returns by investing in ELSS SIPs and staying invested beyond the 3-year lock-in period.

Smart Tips for a Tax Free SIP in 2025

A few smart strategies can help you get the most out of your tax-free SIP investments, especially when choosing the best SIP to invest in 2025. Follow these tips to grow your wealth faster and save more tax.

• Start early: Begin your SIPs at the start of the financial year to enjoy longer compounding benefits.
• Use multiple SIPs: Invest in more than one ELSS fund for better flexibility and diversification.
• Stay invested: Continue beyond the 3-year lock-in period to earn higher long-term returns.
• Reinvest gains: Reinvest profits within the ₹1.25 lakh LTCG exemption limit for extra growth.
• Diversify wisely: Spread your investments across top-performing ELSS funds to balance risk and reward.

SIP Calculator

I know my investment amount I know my goal amount

Monthly SIP Yearly SIP Lumpsum

I want to invest Pro Tip

Financial experts suggest that a person should invest 10-15% of their monthly income for long-term financial growth

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I want to invest for Pro Tip

Financial experts suggest that individuals should ideally invest for a period of 5 to 10 years, or even longer, to maximize the benefits of compounding and navigate market fluctuations effectively

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Expected return Pro Tip

Top 25% of investors consistently generate more than 12% return

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Total Wealth ₹1.03 Cr

View Plans

I want to save

I want to invest for Pro Tip

Financial experts suggest that individuals should ideally invest for a period of 5 to 10 years, or even longer, to maximize the benefits of compounding and navigate market fluctuations effectively

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Expected return Pro Tip

Top 25% of investors consistently generate more than 12% return

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Monthly Investment ₹22.4 L

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Top Funds with High Returns (Past 7 Years)

12.96%

Equity Pension

15.49%

Global Equity Index Funds Strategy

19.1%

Pension Growth Super

13.16%

Opportunities Fund

20.89%

Multi Cap Fund

14.15%

Accelerator Mid-Cap Fund II

15.54%

Multiplier

14.63%

Frontline Equity Fund

18.41%

Pension Mid Cap Fund

11.16%

Equity II Fund

14.8%

US Equity Fund

15.03%

Growth Opportunities Plus Fund

11.66%

Equity Top 250 Fund

14.03%

Future Apex Fund

12.01%

Pension Dynamic Equity Fund

14.38%

Pension Enhanced Equity

Conclusion

A Tax-Free SIP in 2025 is one of the smartest ways to build long-term wealth while saving taxes. By investing in ELSS mutual funds, you not only enjoy Section 80C deductions but also benefit from tax-free gains up to ₹1.25 lakh every year. Starting early, staying invested beyond the lock-in, and choosing top-performing ELSS funds can help you grow your money faster with complete tax efficiency.