As an individual seeking to grow capital, earn high interest, and reduce tax liability, it’s important to explore investment opportunities that align with these goals. The government of India incentivizes savings by offering tax relief to taxpayers who invest in certain instruments up to specified amounts. Understanding how investments are taxed is crucial for selecting the most suitable option. Tax-saving investments typically fall into three categories: EEE, EET, and ETE. These classifications help individuals comprehend the tax implications associated with their investments and make informed choices.
EEE – Exempt, Exempt, Exempt
Under this category, the term EEE means the initial investment amount, interest amount, and withdrawal amounts all are exempt.
Example
- Public Provident Fund(PPF): The investment amounts will be available as deduction u/s 80C up to INR 1,50,000. Further, the maturity amounts will also be exempt from tax.
- Sukanya Samriddhi Yojana: Here, the investment amount under Sukanya Samridhi Yojana will be available as a deduction u/s 80C up to INR 1,50,000. Moreover, the maturity amount is also exempt from tax.
EET – Exempt, Exempt, Taxable
Here the first and second exempt mean that the amount that you invest in and the returns that you generate from such investment are tax-free. However, you are liable to pay tax when you withdraw this investment.
This means that the total amount i.e. principle plus the return will be taxable at the time of withdrawal based on the applicable tax slab rate.
Example
To simplify it, let us assume that Ms Aarti falls under the 30% tax bracket. She receives 7% interest on her investments then you will only get 4.9% after deducting 30% from the interest amounts on your investment. A few of the investment options under this scheme are mentioned below:
- Equity Linked Savings Scheme(ELSS): Under this scheme, the initial investment of up to INR 1,50,000 can be claimed as a deduction u/s 80C. However, the withdrawal amounts will be taxable under the head Income from Capital Gains.
- National Pension Scheme(NPS): The investment made under NPS is available as deduction u/s 80CCC up to INR 1.5 lakhs a year + additional INR 50,000 invested in Tier I accounts of NPS u/s 80CCD (1b), Totaling to INR 2 lakhs. Further, on maturity, 60% of the amount will be exempt from tax but the remaining 40% needs to be invested in the annuity which is taxable to the holder.
ETE – Exempt, Taxable, Exempt
In this category, the investment amount and the withdrawals are exempt from taxation up to a certain limit. However, the interest earned on such investment is taxable.
Example
- Tax Saving Fixed Deposit: The investment in a 5-year tax saving fixed deposit is available as a deduction u/s 80C up to INR 1,50,000. Moreover, the withdrawals after completing the maturity period are also exempt. However, The interest amounts are taxable under the head Income from Other Sources.
- National Saving Certificate(NSC): The investment made up to INR 1,50,000 per annum is eligible for claiming deduction under section 80C. Moreover, the interest earned in the 1st 4 years is by default re-invested in the scheme. Hence, such re-investment amount will also be available for claiming deduction u/s 80C. However, the maturity amounts will be taxable.
Hey @sushil_verma
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
For eg,
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
Hey @shindeonkar95
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Hello,
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Hello @Veejayy,
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.