List Of Tax-Saving Investment Options With Totally Tax-Free Returns
Whether you are salaried or self-employed, every year you need to find ways to save tax if you have opted for the old tax regime, right? But most investment options that offer the benefit of tax savings are themselves taxable, such as FDs or NPS. But did you know that there indeed are some tax-saving investment options that are totally tax-free?
Here’s a list of instruments in which you can invest for the purpose of tax saving and wealth creation, without having to pay any tax on the principal or returns:
Public Provident Fund (PPF)
Managed by the Government of India, PPF is one of the safest and most popular tax-saving plus investment options in our country. The principal as well as the interest components are backed by the sovereign guarantee, and currently, Public Provident Fund (PPF) offers an interest rate of 7.1% p.a., which is reviewed every quarter by the Ministry of Finance1. The minimum deposit for opening and maintaining a PPF account every year is INR 500.
One of the biggest advantages that PPF holds over most tax-saving instruments is that it falls into the EEE (exempt, exempt, exempt) category2. So, the amount invested in PPF, the interest earned on PPF, and the maturity proceeds of PPF are all tax-free.
Although the biggest drawback of PPF is its long lock-in period of 15 years, it does offer some degree of liquidity through partial withdrawals, loans, and premature closure. Click here to know more about these rules3.
Sukanya Samriddhi Yojana
Ten years ago, in the year 2015, Indian PM Narendra Modi launched the Sukanya Samriddhi Yojana (SSY) to address the issue of the declining child sex ratio in our country. This scheme by the government of India has been 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 totally exempt from income tax4.
As far as opening the account is concerned, it can be done 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 INR 250, and the rate of interest currently is 8.2% p.a.5. 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, VPF is the voluntary fund contribution that you, as an employee, make towards your provident fund account. This contribution is over and above the 12% contribution by an employee towards his/her EPF, and the maximum contribution is up to 100% of the Basic Salary and Dearness Allowance. VPS offers the same interest rate as the EPF, which currently is 8.25% p.a.6.
Also, VPF comes under the EEE (Exempt Exempt Exempt) category, implying that the contribution, interest, and principal/maturity amount are totally tax-free7. The lock-in period of a VPF account is five years. If an employee withdraws an amount from EPF before five years, they will be liable for tax. The withdrawal amount is tax-free only when it is withdrawn after five years of investment.
References:
1. NSI India, accessed from: https://www.nsiindia.gov.in/(S(zbvk0z3vwnsxdd55bjw3fc45))/InternalPage.aspx?Id_Pk=178
2. Clear Tax, accessed from: https://cleartax.in/s/ppf
3. NSI India, accessed from: https://www.nsiindia.gov.in/(S(hhdb2mu1vvoerguynml4uw55))/InternalPage.aspx?Id_Pk=169
4. Clear Tax, accessed from: https://cleartax.in/s/sukanya-samriddhi-yojana
5. NSI India, accessed from: https://www.nsiindia.gov.in/(S(ijoigz55aauojoblr5atyk45))/InternalPage.aspx?Id_Pk=179
6. News On Air, accessed from: https://www.newsonair.gov.in/centre-approves-8-25-interest-rate-on-epf-deposits-for-fy-2024-25/
7. Clear Tax, accessed from: https://cleartax.in/s/voluntary-provident-fund
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