Investment Options with 80C deduction benefit alongwith exemption on yield

Last Updated On: March 22, 2019, 1:20 p.m.

You have last few days left with you for making your tax-saving investments. The investment need to be done by March 31 in the Section 80C instruments to gain a tax deduction for the current financial year.

As a tax saving option a total amount of Rs 150000 can be invested in specified instruments under Section 80C of the Income Tax Act, the yield on such investments carries different tax treatment in the long run. While some are totally tax exempt enjoying Exempt, Exempt, Exempt (EEE) status where investment, accumulation and maturity are totally tax-free, others have a tax liability on gains.

Let us see which are the instruments that are EEE and which do not enjoy the status: First, let’s take a look at Products which can give you EEE benefit.

These are Exempt-Exempt-Exempt (EEE) Solutions

EPF: Employee Provident Fund or EPF can help you save tax. You can maximumly contribute your whole basic salary and dearness allowances if any received by your employer. The following benefit can be availed under voluntary retirement fund. “Being sovereign guaranteed, EPF is also among the safest investment instruments available to employees. It is also a tax-friendly instrument as the employee can claim his EPF contribution as a deduction under Section 80C. The maturity amount is too tax-free, provided that the corpus is withdrawn after 5 years of continuous service (in one or multiple organization),” said Priyanka Khurana - CEO& Co-founder, Current interest rates stand at 8.55%.

PPF: Public Provident Fund or PPF is one of the product which gives exempt-exempt-exempt benefit if investments are realized on maturity. However, the product holds a very long-term maturity of 15 years which stands highest amongst the other financial products. One can claim up to Rs 1.5 lakh under section 80C of Income Tax Act. One of the unique benefits of investing in PPF is that the amount invested is not seizure by the court. Current interest rates stand at 7.6%.

ULIPs: Unit Linked Insurance plan or ULIPs are tax saving products which appeal more attractive to taxpayers, especially, when there is not only the advantages of safety, liquidity and returns available on this financial instruments but also, investors get the opportunity to save their tax too. In Ulips, the first stage includes where money invested in ULIPs is eligible for deduction under Section 80C of the Income Tax Act. The second stage includes earnings of interest and dividends which are again not taxed. The third stage includes withdrawal of income, which is again tax-free under Section 10(10D) of the Income Tax Act. The Exempt-Exempt-Exempt tax benefit available on ULIPs makes it more appealing, thus, encouraging investors to invest in them.

ELSS: Equity Linked Savings Scheme or ELSS holds 80% to 100% of their investment in equities. The fund is designed with an investment objective of having long-term growth & capital appreciation. Therefore, the investment horizon for the equity scheme should be kept longer. However, the irony is that this product comes with a minimum lock-in period of 3 years as compared to other financial instruments. Till the time your gains do not exceed Rs 1 lakh and are realised, your investment and returns will come under the ambit of EEE benefit. One can save tax up to Rs 1.5 lakh under section 80C of the Income Tax Act.

Not an Exempt-Exempt-Exempt (EEE) solution

NPS: National Pension System or NPS is an important solution while choosing a financial product and knowing its taxation. After considering the after-tax effect on fixed income securities, NPS appears to be an attractive bet. Abhinav Angirish-Founder, said that the NPS, unlike EPF and PPF, is subject to EET— exempt, exempt and tax. Apart from the overall Rs 1.5 lakh deduction under section 80C, a further deduction of Rs.50000 is available under section 80 CCD for NPS. “Investors are also eligible to withdraw up to 25% of their contributions from their pension fund accounts in case of emergency, after 10 years. This increased liquidity in the asset should help investors align towards this asset.

NSC: National Savings Certificate or NSC is one of the tax saving investment options available to individuals apart from PPF, ELSS, Tax-saver Bank FDs. Though interest rates are lower nowadays, NSC is still an attractive option for someone who is risk averse and is looking for a guaranteed return. Deduction under section 80C is available for all these options. In case of NSC, interest is taxable only at the time of maturity. Whereas, interest on FDs is taxable on yearly basis. However, NSC has a much shorter lock-in period of 5 years as compared to 15 years in case of PPF," said S. Vasudevan, Partner, Lakshmikumaran & Sridharan.

NSC comes under the EET category. "The interest earned in one year is rolled back to the principal. Since it is not paid out, that interest is also not taxed. The interest earned in the last year is taxable on maturity.  Current interest rate stands at 7.6%

Fixed Deposit: Fixed Deposits or FD comes under ETE status (which has the minimum maturity of 5 years is eligible for doing tax saving), it means that only the interest from these investments is taxable and the same are denoted by the centre ‘T’. “The difference between EET and ETE is that in EET, the investment is taxed at maturity and in ETE, the investment is taxed while growth period. This will lead to a lower return on ETE products as compared to EET products as the tax component is not allowed to grow (compound). Despite this fact, it could a good bet as FD being a debt investment is safer than other saving avenues whose returns are uncertain.  Consequently, among debt investments, tax saving FDs are a comparatively more liquid, safe and convenient option.


Contact us for Corporate or Individual Income Tax related services at 7906012752 or 9599937963.


Copyright © 2019 - All Right Reserved