The government of India has introduced several schemes to encourage savings and investments. Some of these schemes provide tax exemptions on the income earned from investments.
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Public Provident Fund (PPF)
Section 80C of the Income Tax Act allows for a deduction for PPF contributions up to a maximum of Rs. 1.5 lakh per year. Additionally, the interest earned and the maturity amount of the PPF are tax-exempt.
National Savings Certificate (NSC)
Investing in National Savings Certificates allows you to claim a deduction under Section 80C. The interest earned on NSCs is taxable, but it is considered reinvested and qualifies for an exemption under Section 80C. However, the interest income is subject to tax, so it needs to be added to your taxable income.
Sukanya Samriddhi Yojana (SSY)
SSY is a government scheme aimed at promoting the welfare of the girl child. Section 80C allows for a deduction for contributions paid to SSY. Both the maturity sum and the interest earned are tax-free.
Employees' Provident Fund (EPF)
If you are employed and contribute to the EPF, your contributions are eligible for a deduction under Section 80C. The interest earned on EPF is tax-exempt. However, if you withdraw the EPF balance before completing five years of continuous service, it becomes taxable.
Senior Citizens' Saving Scheme (SCSS)
While the Senior Citizens' Saving Scheme does not offer tax deductions for contributions, the interest earned is taxable but eligible for deductions under Section 80TTB for senior citizens. This scheme is designed specifically for individuals aged 60 years or above.
Tax-Saving Fixed Deposits
Investing in tax-saving fixed deposits offered by banks qualifies for a deduction under Section 80C. However, the interest earned on these deposits is taxable as per your applicable tax slab.
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