EEE investments: Get completely tax-free returns with these investments – PPF, EPF and SSY; check details | Business – Times of India
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In the fiscal year 2023-24, employed individuals can choose between the old tax system and the new one. The old tax regime offers deductions and exemptions, while the new one has lower tax rates but fewer deductions. It’s important to compare your tax liabilities under both systems before deciding. If the old system is better for you, it’s vital to pick the right tax-saving options.
As per an ET report, below are four tax-saving investment options that not only help you reduce income tax but also provide returns that are completely tax-free. Remember, these benefits are exclusive to individuals who choose the old tax regime.
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Public Provident Fund (PPF)
Under Section 80C, investing in the Public Provident Fund (PPF) allows individuals to lower their taxable income. This scheme falls under the “exempt-exempt-exempt” (EEE) category, meaning investors can claim deductions on their invested amount, and they don’t have to pay tax on the interest earned or the maturity amount. The PPF scheme is highly secure as it carries a sovereign guarantee.
The interest rate of PPF is revised by the central government every quarter. For the April-June 2024 quarter, the PPF offers an interest rate of 7.1% per annum.
The PPF account has a lock-in period of 15 years, starting from the end of the financial year in which the investment is made. From the third to the sixth financial years after opening the account, individuals can avail themselves of a loan facility. Premature withdrawal is allowed from the seventh financial year onwards, subject to specific conditions. Additionally, under certain circumstances, individuals can opt for premature closure of their PPF account.
A PPF account can be opened either with a post office or a bank. An individual can open only one PPF account in their name, with the minimum and maximum investment being Rs 500 and Rs 1.5 lakh, respectively, in a financial year.
Sukanya Samriddhi Yojana (SSY)
The Sukanya Samriddhi Yojana (SSY) is part of the government’s “Beti Bachao, Beti Padhao” initiative, designed as a savings scheme for girl children. It enables parents to invest in their daughter’s education or marriage while enjoying income tax benefits. Similar to the PPF, the SSY account follows the EEE tax status, meaning the invested amount, interest earned, and maturity amount are all tax-exempt.
With a sovereign guarantee, the SSY offers top-notch safety standards. The government reviews the scheme’s interest rate quarterly. Currently, for the quarter ending June 30, 2024, the SSY offers an attractive interest rate of 8.2%.
The scheme has a lock-in period of 21 years from the account’s opening date, with provisions for premature withdrawal under certain conditions.
A Sukanya Samriddhi Yojana account can be opened by a guardian in the name of a girl child, provided she is under 10 years old. The account can be established at either a bank or a post office, with contributions ranging from a minimum of Rs 250 to a maximum of Rs 1.5 lakh per financial year. The guardian oversees the account until the girl reaches 18 years of age.
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Employees Provident Fund (EPF) and Voluntary Provident Fund (VPF)
Salaried individuals enrolled in the Employees’ Provident Fund (EPF) system are required to set aside 12% of their salary for their EPF account, with their employer contributing the same amount. Contributions made by the employee to the EPF are eligible for tax deduction under Section 80C of the Income Tax Act. If an individual wants to make additional contributions beyond the mandatory 12%, they can opt for the Voluntary Provident Fund (VPF), with regulations governing both EPF and VPF contributions being identical.
Managed by the government, the EPF scheme offers the highest safety standards. The interest rate for the EPF in 2023-24 is set at 8.25%.
The scheme has a lock-in period until retirement age, with provisions for premature withdrawals under certain circumstances, such as higher education expenses, marriage, or medical treatment.
The EPF scheme enjoys an EEE (Exempt-Exempt-Exempt) tax status, provided certain conditions are met. However, starting from the fiscal year 2021-22, if an employee’s contributions to EPF and VPF accounts exceed Rs 2.5 lakh in a fiscal year, the interest earned on the excess amount becomes taxable. Additionally, from the fiscal year 2020-21, if the employer’s combined contributions to EPF, National Pension System (NPS), and superannuation funds exceed Rs 7.5 lakh annually, the surplus amount is taxable in the hands of the individual recipient. Interest, dividends, and other earnings on these excess contributions are also subject to taxation. Nonetheless, the maturity amount of the EPF scheme remains tax-exempt.
Therefore, as long as the contribution limits set by both the employee and the employer are not exceeded, the EPF retains its EEE tax status.
