Is ELSS Taxable After 3 Years? Impact of Death on Fund Redemption

Families often assume that nomination is enough for quick access to investments. But when it comes to ELSS or RBI bonds, the lock-in period still applies, even after the investor’s death.

People often wonder what happens to ELSS funds or RBI bonds when an investor dies. Most assume that nomination means quick access, but reality looks different. A 2024 Mint report highlighted a case where ELSS worth ₹6 lakh remained locked even after the holder's death, because the lock-in was still active. 

This raises questions about whether ELSS is taxable after 3 years and how such products work post-death. It also brings up confusion over selecting the best ELSS funds with these rules in mind.

What Triggered This Lock-in Rule Discussion Again?

The issue resurfaced in 2024 when many investors realised that even after death, ELSS cannot be redeemed immediately. SEBI’s rule says that ELSS funds have a three-year lock-in. But in case of death, the nominee can only redeem it after one full year from the allotment date, not immediately.

This made many families search again for ELSS taxable after 3 years and how to pick the best ELSS funds that match their needs, especially with smoother claims in mind.

RBI Bonds, on the other hand, follow stricter terms. The nominee must wait until the original tenure ends. It may seem unfair, but that’s how these instruments are designed.

According to a LoansJagat article on ELSS funds: one of the key features of ELSS is a mandatory lock-in period of 3 years.

Before moving forward, a short table helps clear the confusion.
 

This shows how the lock stays untouched even when someone passes. Strange but true.

Why Lock-In Stays Even After Death?

ELSS funds offer tax benefit under Section 80C, which comes with a condition, a 3-year lock-in. But that lock-in doesn’t automatically go away when the investor passes.

The nominee has to submit documents like the transmission form, death certificate, and KYC, and still wait for one year if the ELSS is new. Naturally, many people again ask if ELSS is taxable after 3 years, and how that applies when it’s a nominee making the claim. It also affects choices for the best ELSS funds, as families prefer easy redemption.

RBI Bonds are stricter. Their lock-in stays unchanged until maturity. Nominees cannot break it, even with valid paperwork.

The next part links this story to older news.

Link To Past Coverage And Why It Still Matters

Earlier reports showed many delays in claims because families had not updated nominees. Even when nomination was in place, legal issues required court verification. This slowed down the release of money in ELSS and RBI bonds.

Such cases remind people that ELSS taxable after 3 years is not just a tax-planning question but also a practical claim-related concern. Investors choosing the best ELSS funds now look for both growth and post-death clarity.

A quick comparison of government rules.
 

These schemes protect tenure more than convenience.

Conclusion

Lock-ins on ELSS, RBI Bonds, PPF, and NSC do not end with the death of the investor. ELSS allows redemption after 1 year from allotment if the investor dies. RBI bonds, on the other hand, can only be claimed after full maturity.

So before selecting from the best ELSS funds, it's important to consider both performance and ease of transmission. And yes, for nominees, understanding is ELSS taxable after 3 years remains important to avoid confusion during claims.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.