Yes, returns from Tax saving mutual funds are subject to taxation. Although the investment itself qualifies for tax deduction under Section 80C, the gains made from the fund are treated as capital gains. If the returns exceed ?1 lakh in a financial year, they are taxed at 10% under long-term capital gains tax, since the holding period is more than one year. Despite this, tax saving mutual funds still offer an efficient way to reduce taxable income and achieve growth, especially compared to other traditional tax-saving instruments.