It’s that month of the year when all the last-minute hustlers are finding ways to save tax, a task that should ideally have been done as soon as the financial year 2023-24 had begun in April. Nevertheless, better late than never, right? Irrespective of whether you have done your task of tax saving this year or not yet, it would be wise to have a look at these tax-saving investment options whose returns are totally tax-free.
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List Of Tax-Saving Investment Options With Tax-Free Returns
Public Provident Fund (PPF)
Managed by the Government of India, PPF is one of the safest investment options in Section 80C. Both the principal as well as the interest components are backed by the sovereign guarantee. Currently, PPF offers an interest rate of 7.1% p.a. compounded annually, which is reviewed every quarter by the Ministry of Finance, based on the government bond yields. The minimum deposit for opening a PPF is Rs 500.
A big advantage that PPF holds over many other tax-saving instruments is that it falls into the EEE (exempt, exempt, exempt) category. So, the amount invested in PPF, the interest earned on PPF, and the maturity proceeds of PPF are all tax-free.
While the biggest drawback of the PPF scheme is its long lock-in period of 15 years, it does offer some degree of liquidity in the form of facilities such as partial withdrawals and premature closure. Click here to learn about the rules.
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Sukanya Samriddhi Yojana
To majorly address the issue of the declining child sex ratio in our country, the government of India launched the Sukanya Samriddhi Yojana (SSY) which aims at tackling a major problem associated with the girl child – education and marriage. It is focused on securing a bright future for the girl child in India by helping the parents of a girl child in building a fund for the higher education and carefree marriage expenses of their child.
The proceeds received upon maturity/withdrawal of investment in the SSY account are exempt from income tax.
You can open an SSY account for your girl child. It can be opened at any moment between the birth of the girl child and the age of 10 years. The guardian can deposit the amount and operate the account till the girl child attains the age of 18. The minimum deposit amount for an SSY account is Rs.250.
The rate of interest currently is 8% p.a. The maturity period of SSY is 21 years from the account opening or upon her marriage after attaining 18 years.
Voluntary Provident Fund (VPF)
As its name suggests, the Voluntary Provident Fund (VPF) is the voluntary fund contribution you as an employee make towards your provident fund account. This contribution is beyond the 12% contribution by an employee towards his EPF. The maximum contribution is up to 100% of the Basic Salary and Dearness Allowance. Interest is earned at the same rate as the EPF. So currently it is 8.15% p.a.
The VPF comes under the EEE (Exempt Exempt Exempt) category. So, the VPF contribution, interest and principal/maturity amount are tax-free. The lock-in period of a VPF account is five years. If an employee withdraws an amount from EPF before five years, it will be liable for tax. The withdrawal amount is tax-free only when it is withdrawn after five years of investment.
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ELSS (Long Term Capital Gains Upto Rs 1 Lakh)
While we know that Long-term capital gains (LTCG) of more than Rs 1 lakh in a financial year realized from ELSS are taxed at 10%. But LTCG up to Rs 1 lakh are tax-free. So you can have tax-free long-term capital gains on your ELSS investment if they are up to Rs 1 lakh in a year.
On the other hand, ELSS’ short-term capital gains (STCG) attract a tax of 15%.
