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What instruments come under the Exempt-Exempt-Exempt tax regime?

Instruments that allow tax benefits can often have higher post-tax returns compared to other options. The Exempt-Exempt-Exempt tax regime in India enables investors to invest in instruments that have multiple tax benefits. 

The Exempt-Exempt-Exempt tax regime in India allows tax benefits at three stages of an investment. These include:

  • Investments offer tax deductions on the portion of the annual salary which is equivalent to the investment amount and is therefore not taxable 
  • Tax exemption on the interest earned
  • Exemption on the income which is generated is not taxable when withdrawn

The Exempt-Exempt-Exempt tax regime in India is usually applicable to long-term investments. Read on to learn more about the instruments that reap benefits for investors through the Exempt-Exempt-Exempt tax regime in India. 

  • Equity Linked Saving Scheme (ELSS): These mutual funds primarily invest in equity stocks and are thus dependent on market factors, which can prove risky during market instability. However, the returns generated are quite high, when market conditions are stable. Up to ₹1,50,000 can be invested into ELSS funds and is entirely tax-free owing to Section 80C of the Income Tax Act, 1961. ELSS has a three-year lock-in period, but partial withdrawal is available as dividends which are also tax-free. 

0. Public Provident Fund (PPF): PPF is one of the most popular investment instruments for those looking to save up for retirement and for meeting their long-term goals. The fund assures complete safety of investment, with zero risk and consistent growth of the corpus. Not only is the investment tax-free owing to Section 80C of the Income Tax Act, but its inclusion under the Exempt-Exempt-Exempt tax regime in India ensures that taxes are not levied while investing or even while generating returns or income from it.

0. Employee Provident Fund (EPF): In the corporate sector, it is a mandatory requirement for employers to deduct 12% of the employee’s salary towards contribution to the EPF. Additionally, the employer makes the same and equal contribution to the fund. Under Section 80C of the Income Tax Act, the money that is invested into the EPF is free from taxation. The interest paid is tax-free as well, which makes the investment instrument a much sought after option by investors. The amount being invested can be higher than the 12% dictated by law, and this excess amount is also free from taxation. 

Investment instruments that fall under the Exempt-Exempt-Exempt tax regime in India are especially popular with investors owing to the enormous tax benefits they offer, which enable higher savings and increased corpus for meeting financial objectives.

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