In India, women play multifaceted roles as homemakers, professionals, entrepreneurs, leaders and caretakers. Amidst all these responsibilities, understanding tax-efficient investment strategies is essential for their financial empowerment and security. There are certain tax benefits available specifically for women taxpayers.
This article provides a brief overview on the tailored tax investment tips to enable Indian women optimize their tax planning and financial resources and achieve their long-term goals.
The Sukanya Samriddhi Yojana is a government backed savings scheme specifically designed for the benefit of the girl child. The scheme aims to promote the welfare of the girl child and encourage parents to save for their education and marriage expenses.
Certain key aspects of the scheme are as follows:
* An account under such scheme may be opened by any of the parents/guardians in the name of a girl child till she attains the age of 10 years. Further, it is pertinent to note that an account under this Scheme may be opened for a maximum of two girl children in one family, subject to certain exceptions.
* The account may be opened with a minimum initial deposit of Rs. 250. However, the total amount deposited in an account shall not exceed Rs. 1,50,000 in a financial year
* Deposits may be made in the account till the completion of a period of 15 years from the date of opening of the account.
* The current interest rate on such scheme is 8.2% per annum.
* The account shall be operated by the guardian till the account holder (i.e., girl child) attains the age of 18 years and thereafter the account may be operated by the girl child herself by submitting necessary documents.
* The account shall mature on completion of a period of 21 years from the date of its opening.
Tax Benefits of Sukanya Samridhi Yojana
Sukanya Samriddhi Scheme falls under the EEE (Exempt, Exempt, Exempt) tax category, which means an investor is not liable to pay tax at all three levels – investment, earning and withdrawal. Any payment received from an account (i.e., at the time of maturity or in the nature of interests) opened in accordance with Sukanya Samriddhi Account Rules shall be exempt from tax u/s 10(11A) of the Income Tax Act, 1961 (herein after referred to as ‘IT Act’).
Investments made in the SSY scheme are eligible for deductions under Section 80C, subject to a maximum cap of Rs 1.5 lakh.
National Savings Certificate (‘NSC’) is a fixed income investment scheme that can be availed through post office with a minimum deposit of Rs. 1,000. Currently, the scheme offers a guaranteed return at the rate of 7.7% for investors. It is pertinent to note that Non-Resident Indians (NRIs) are not permitted to invest in NSC.
Investors can open following types of accounts under this scheme, namely:-
a. Single Holder Type Account
b. Joint A- Type Account (Account opened jointly in the names of upto 3 adults payable to all the holders jointly or to the survivor) and
c. Joint B – Type Account (Account may be opened jointly in the name of upto three adults payable to any of the account holders or to the survivor.
There shall be no maximum limit for deposit in an account or in accounts held by an account holder. However, investors need to deposit a minimum of Rs. 1000 in an account.
The deposit shall mature on completion of 5 years from the date of the deposit.
Tax benefits u/s 80C of the Income Tax Act, 1961
Section 80C of the IT Act allows taxpayers to avail a deduction of any sum paid or deposited towards subscription of National Savings Certificate. However, such deduction shall be subject to an aggregate threshold of Rs. 1,50,000. Further, it is pertinent to note that interest on NSC shall be taxable under head ‘Income from Other Sources’.
Public Provident Fund (‘PPF’) is one of the most popular investment opportunity for long term investors. A PPF account can be opened with a minimum deposit of Rs. 500 and a maximum annual contribution of Rs. 1,50,000. The tenure of this investment fund is 15 years thereafter an investor may also choose to extend the PPF account for an additional 5-year period.
The current interest on PPF is at the rate of 7.1% which is annually compounded. Further, after 5 years after the opening of such account, the investor shall be eligible to make withdrawal of upto 50% of the amount.
Tax benefits u/s 80C and 10(11) of the Income Tax Act, 1961
Public Provident Fund deposits fall under EEE tax category (i.e., Exempt, Exempt, Exempt), therefore an investor shall not be liable to pay tax at any of the three levels being investment, earning and withdrawal.
Investment made in the PPF Scheme is eligible for deduction u/s 80C of the IT Act. However, such deduction shall be subject to the aggregate threshold of Rs. 1,50,000.
In addition to the aforementioned investment strategies, section 80C of IT Act provides deduction in respect of various other tax savings investments women taxpayers may leverage on the plethora of tax deductions available u/s 80C of the IT Act as indicated below:
* Life Insurance policy taken by the women taxpayer for herself or spouse or any children. However, such a deduction cannot exceed 10% of the sum assured w.e.f 1/4/2013 in case of a normal person and 15% of sum assured in case of a person suffering from specified diseases u/s 80U.
* Subscription to the units of the Equity Linked Savings Scheme
* Subscription to Notified Deposit Scheme (such as pension scheme set up by National Housing Bank)
* Subscription to NABARD bonds or any other notified bonds
* Deposit in Senior Citizens Savings Scheme
* Investment in term deposit of a scheduled bank provided the tenure is more than or equal to 5 years
* Investment in 5 year Post Office Time Deposit
Lastly, it is pertinent to note that such deductions with respect to contribution in such investments shall be subject to the aggregate threshold of Rs. 1,50,000.
Most of the taxpayers including women taxpayers hold a savings account in some or the other bank and earn interest on the same. As per section 80TTA of the IT Act, taxpayers who earn interest on savings account maintained either with a bank (including co-operative society engaged in the business of banking) or a post office, can claim a deduction upto Rs. 10,000 per financial year.
Further, Section 80TTB of the IT Act provides additional benefit to resident senior women citizens, wherein it not only enhances the maximum limit of deduction to Rs. 50,000 per financial year but also extends the scope of the benefit to interest received on time/fixed deposits.
National Pension System (‘NPS’) is a tax-saving investment cum pension scheme of their residential status belonging to the age group of 18 years to 70 years. Pension Funds are responsible for investing contributions, accumulating them and managing pension corpus through various schemes under National Pension System. Women taxpayer’s can choose between the investment options based on risk appetite and investment preferences, with flexibility to switch between asset allocation schemes.
Tax Benefits u/s 80CCD(1) of the Income Tax Act, 1961
Section 80CCD(1) of the IT Act allows individuals to claim deduction against their NPS contribution, the same shall be lower of the following:
(i) Women Taxpayer’s contribution to the NPS
(ii) 10% of the Salary/ 20% of the Gross Total Income
The aggregate deduction under section 80C, 80CCC and 80CCD (1) of the IT Act would be subject to the threshold limit of Rs. 1,50,000.
Tax Benefits u/s 80CCD(1B) of the Income Tax Act, 1961
An additional deduction of Rs. 50,000 would be available u/s 80CCD (1B) of the IT Act in respect of any contribution on which the overall threshold limit of Rs. 1,50,000 is not applicable.
It is pertinent to note that when claiming deduction under this section, one should ensure that there is no duplication of claim.
Mahila Samman Savings Certificate is a one-time new small savings scheme announced in Budget 2023 by the Finance Minister. The scheme shall be valid for a 2-year period commencing from April 2023.
It is pertinent to note that no tax benefits for the said scheme has been announced yet.
* An application for opening an account under this Scheme shall be made by a woman for herself, or by the guardian on behalf of a minor girl.
* A woman may open number of accounts under this scheme. However, a maximum amount of Rs. 2,00,000 can be deposited in an account or accounts held by an account holder. Further, a minimum amount of Rs. 1000 should be deposited in the said scheme.
* The deposits made under this Scheme shall bear interest at the rate of 7.5% per annum. Such interest shall be compounded on quarterly basis and credited to the account.
* The deposit shall mature on completion of 2 years from the date of the deposit and the eligible Balance may be paid to the account holder provided an application is submitted for same in the prescribed format.
* The account holder shall be eligible to withdraw maximum up to 40% of the Eligible Balance once after the expiry of 1 year from the date of opening of the account but before the maturity of the account.
(By Dr. Suresh Surana, Founder, RSM India. Views are personal)