Income Tax Planning FY2023-24: 4 tax-saving options for tax-free returns

You can save a tax of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961 for investing in PPF. The return from PPF is also tax-exempt. However, it has a lock-in period of 15 years.

At present, PPF offers an interest rate of 7.1% for the January to March quarter. It also enjoys a sovereign guarantee as it is backed by the central government.

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Another small savings scheme that can offer you a tax-free return is Sukanya Samriddhi Yojana (SSY). Do keep in mind an SSY account can only be opened in the name of a girl child. The age of the girl child should not exceed 10 years.

It also comes with a sovereign guarantee. Sukanya Samriddhi Yojana has a lock-in period of 21 years.

Sukanya Samriddhi Yojana earns an interest of 8.2% for the January-March quarter.

It will offer an income tax deduction of up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961.

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Salaried individuals have to mandatorily deposit 12% of their salary in the Employees Provident Fund (EPF). This EPF contribution is eligible for a deduction of up to Rs 1.5 lakh under Section 80C.

The scheme has a lock-in period till the age of retirement.

The EPF scheme has Exempt-Exempt-Exempt tax status subject to certain conditions. From 2021-22, if the employee’s contributions to EPF and VPF accounts exceed Rs 2.5 lakh in a financial year, the interest earned on the excess amount will be taxable. Further, from FY 2020-21, if the employer’s contributions to EPF, NPS, and the superannuation fund on an aggregate basis exceed Rs 7.5 lakh in a financial year, the excess amount will be taxable in the hands of the individual concerned. Any interest, dividend, etc., earned on excess contribution will also be taxable. However, the maturity amount remains tax-exempt.

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You can get a tax deduction of up to Rs 1.5 lakh under Section 80C for investing in an equity-linked savings scheme (ELSS). It comes with a lock-in period of three years.

While investing in ELSS, you will get two options — a) Dividend and b) Growth. Under the dividend option, dividends are paid to the investor when they are announced by the fund house. In the growth option, no dividends are paid; the money remains invested in the scheme till it is redeemed by the investor.

The ELSS mutual fund scheme will have EEE tax status if an individual opts for the growth option while investing, and while redeeming, ensures that the capital gains do not exceed Rs 1 lakh in a financial year.

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