April is the time of year when many people scramble to save tax at the last minute, instead of doing so at the beginning of the financial year in April. Whether you’ve already saved this year or not, it’s a good idea to take a look at some tax-saving investment options with totally tax-free returns.
PUBLIC PROVIDENT FUND (PPF)
The PPF is managed by the Government of India, making it one of the safest investment options in Section 80C. Both the principal and interest components are backed by a 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 government bond yields. The minimum deposit for opening a PPF is Rs 500. One of the major advantages of PPF is that it falls into the EEE (exempt, exempt, exempt) category. This means that the amount invested in PPF, the interest earned on PPF, and the maturity proceeds of PPF are all tax-free.
SUKANYA SAMRIDDHI YOJANA (SSY)
The SSY was launched by the government of India to address the declining child sex ratio in the country. It focuses on securing a bright future for the girl child in India, helping parents build a fund for their education and marriage expenses. The proceeds received upon maturity/withdrawal of investment in the SSY account are exempt from income tax.
VOLUNTARY PROVIDENT FUND (VPF)
VPF is a voluntary fund contribution made by employees towards their provident fund account. The maximum contribution is up to 100% of the Basic Salary and Dearness Allowance. Interest is earned at the same rate as the employee provident fund (EPF), which is currently 8.15% p.a. VPF also falls under the EEE (exempt, exempt, exempt) category, making the contribution, interest, and principal/maturity amount tax-free.
EQUITY-LINKED SAVINGS SCHEME (ELSS)
Long-term capital gains (LTCG) of up to Rs 1 lakh in a financial year realized from ELSS are tax-free. Any LTCG above Rs 1 lakh is taxed at 10%. However, ELSS’ short-term capital gains (STCG) attract a tax of 15%.
Historical Background:
The concept of tax-saving investments has been prevalent in India for many years. The government has introduced various schemes and options over the years to provide individuals with opportunities to save on taxes while securing their financial future.
In conclusion, it’s always a good idea to plan your tax-saving investments well in advance to make the most of the opportunities available. Whether you choose PPF, SSY, VPF, ELSS, or a combination of these options, it’s essential to understand the benefits and limitations of each investment to make an informed decision.
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