ELSS (Equity Linked Savings Scheme) is not entirely tax-free but offers tax benefits to investors under Section 80C of the Income Tax Act. Investments made in ELSS funds qualify for deductions up to ₹1.5 lakh annually from taxable income, which can lead to substantial tax savings.

The returns from ELSS investments are subject to taxation based on the holding period and gains realized. Short-term capital gains (gains from assets held for less than 3 years) are taxed at a rate of 15%, whereas long-term capital gains (profits from investments held for more than 3 years) exceeding ₹1 lakh are taxed at 10% without the benefit of indexation.

One of the critical advantages of ELSS over other tax-saving instruments like PPF (Public Provident Fund) and NSC (National Savings Certificate) is its potential for higher returns due to investments primarily in equities. Additionally, ELSS has a lock-in period of 3 years, which enforces discipline and commitment in investors for the long term. ELSS's tax advantage can instill confidence and a long-term mindset in investors, allowing them to benefit from tax savings and potential wealth creation through equity exposure.

Overall, while ELSS provides tax-saving benefits under Section 80C, investors must consider the tax implications and the potential returns based on their investment horizon and risk appetite.