Tax exempt avenues
This query is : Resolved
28 March 2012
Hi, I have some 3-4 lakhs of amount lying in SB account. Do not want to pay tax on the FD interest as the effective income for me will be around 6% (9%-30%tax). Any one can suggest me some other alternative (other than stocks) where I can get a good/stable return? How is creating a HUF in my name as I am head of an Hindu Family. Pls advise
29 March 2012
You can invest in mutual funds through SIP. They provide good returns and in the long run you will be able to build a strong capital.
Also, long term gain is exempt on redemtion of mutual fund units.
Also, long term gain is exempt on redemtion of mutual fund units.
14 April 2012
Experts have given proper reply to your query and I agree with them
14 April 2012
Mr CA SS Agarwal, please try to add value with your replies.
Do not add unnecessary replies to a query.
Do not add unnecessary replies to a query.
16 April 2012
I do not want to invest in stocks or stock-related instruments. I have done this in the past and not happy with the returns. I do not believe in the theory that Equities give superior return in the longterm. Just suggest me any other alternative .. . How about putting this money as HUF?
26 July 2025
Got it — you’re looking for tax-efficient options with good, stable returns but want to avoid stocks or equity-related investments. Also considering the idea of creating a Hindu Undivided Family (HUF) to save tax.
Here’s a quick rundown for you:
---
### 1. **Creating an HUF for Tax Benefits**
* **What is HUF?**
A Hindu Undivided Family is a separate legal entity for tax purposes in India. The income earned by the HUF is taxed separately, so it gets its own basic exemption limit (currently ₹3 lakh for senior citizens or ₹2.5 lakh for others).
* **Can you create an HUF now?**
Yes, you can create an HUF anytime. Usually, a male Hindu becomes the Karta (head) of the HUF and can transfer assets to it.
* **Will this save tax on interest?**
If you transfer money to the HUF account and invest it there, interest income will be taxed in the hands of the HUF separately. This effectively doubles your basic exemption limit and can help save tax.
* **Caution:**
The money you transfer to HUF is no longer your personal asset. Also, the income belongs to the HUF and is taxable accordingly. Proper documentation and accounting are required to avoid scrutiny.
---
### 2. **Other Tax-Efficient Investment Options (Non-Equity)**
* **Tax-free Bonds:**
Invest in government or PSU tax-free bonds (e.g., NHAI, IRFC). Interest income is tax-exempt but generally offers lower yields (around 6-7%).
* **PPF (Public Provident Fund):**
* Lock-in: 15 years.
* Interest rate: Around 7-8% (varies quarterly).
* Interest & maturity amount is tax-free.
* Great for long-term stable returns.
* **Senior Citizens Savings Scheme (SCSS):**
If applicable, offers \~7-8% interest, taxable but considered safe.
* **NSC (National Savings Certificate):**
Interest is taxable but eligible for deduction under Section 80C. Locks money for 5 years.
* **Bank Fixed Deposits (Tax Saving FDs):**
* 5-year lock-in, interest is taxable.
* Helps save tax under Section 80C on principal invested (up to ₹1.5 lakh).
---
### 3. **Interest Income Tax Deduction Options**
* For tax-saving, invest in schemes that fall under **Section 80C** (like PPF, NSC, tax-saving FDs) to reduce your taxable income.
---
### Summary
| Option | Tax Treatment | Approx. Returns | Liquidity | Notes |
| -------------- | -------------------------- | --------------------- | --------------------- | -------------------------------------------- |
| HUF | Separate tax entity | Depends on investment | Depends on investment | Involves asset transfer, separate accounting |
| Tax-Free Bonds | Interest exempt | 6-7% approx | Medium to Long-term | Lower risk, lower returns |
| PPF | EEE (Exempt-Exempt-Exempt) | 7-8% approx | 15 years lock-in | Very safe, tax-free returns |
| NSC | Interest taxable | \~7-8% | 5 years lock-in | Eligible for 80C deduction |
| Tax-saving FDs | Interest taxable | 7-8% approx | 5 years lock-in | Eligible for 80C deduction |
---
### Final Notes:
* **HUF can be a good tax planning tool**, but it requires proper set-up and maintenance.
* **PPF and Tax-Free Bonds** are among the best safe and tax-efficient options outside equity.
* Avoid locking all money in long-term options if you need liquidity.
If you want, I can help you draft a plan for creating an HUF or suggest specific schemes that fit your risk and liquidity profile. What do you think?
Here’s a quick rundown for you:
---
### 1. **Creating an HUF for Tax Benefits**
* **What is HUF?**
A Hindu Undivided Family is a separate legal entity for tax purposes in India. The income earned by the HUF is taxed separately, so it gets its own basic exemption limit (currently ₹3 lakh for senior citizens or ₹2.5 lakh for others).
* **Can you create an HUF now?**
Yes, you can create an HUF anytime. Usually, a male Hindu becomes the Karta (head) of the HUF and can transfer assets to it.
* **Will this save tax on interest?**
If you transfer money to the HUF account and invest it there, interest income will be taxed in the hands of the HUF separately. This effectively doubles your basic exemption limit and can help save tax.
* **Caution:**
The money you transfer to HUF is no longer your personal asset. Also, the income belongs to the HUF and is taxable accordingly. Proper documentation and accounting are required to avoid scrutiny.
---
### 2. **Other Tax-Efficient Investment Options (Non-Equity)**
* **Tax-free Bonds:**
Invest in government or PSU tax-free bonds (e.g., NHAI, IRFC). Interest income is tax-exempt but generally offers lower yields (around 6-7%).
* **PPF (Public Provident Fund):**
* Lock-in: 15 years.
* Interest rate: Around 7-8% (varies quarterly).
* Interest & maturity amount is tax-free.
* Great for long-term stable returns.
* **Senior Citizens Savings Scheme (SCSS):**
If applicable, offers \~7-8% interest, taxable but considered safe.
* **NSC (National Savings Certificate):**
Interest is taxable but eligible for deduction under Section 80C. Locks money for 5 years.
* **Bank Fixed Deposits (Tax Saving FDs):**
* 5-year lock-in, interest is taxable.
* Helps save tax under Section 80C on principal invested (up to ₹1.5 lakh).
---
### 3. **Interest Income Tax Deduction Options**
* For tax-saving, invest in schemes that fall under **Section 80C** (like PPF, NSC, tax-saving FDs) to reduce your taxable income.
---
### Summary
| Option | Tax Treatment | Approx. Returns | Liquidity | Notes |
| -------------- | -------------------------- | --------------------- | --------------------- | -------------------------------------------- |
| HUF | Separate tax entity | Depends on investment | Depends on investment | Involves asset transfer, separate accounting |
| Tax-Free Bonds | Interest exempt | 6-7% approx | Medium to Long-term | Lower risk, lower returns |
| PPF | EEE (Exempt-Exempt-Exempt) | 7-8% approx | 15 years lock-in | Very safe, tax-free returns |
| NSC | Interest taxable | \~7-8% | 5 years lock-in | Eligible for 80C deduction |
| Tax-saving FDs | Interest taxable | 7-8% approx | 5 years lock-in | Eligible for 80C deduction |
---
### Final Notes:
* **HUF can be a good tax planning tool**, but it requires proper set-up and maintenance.
* **PPF and Tax-Free Bonds** are among the best safe and tax-efficient options outside equity.
* Avoid locking all money in long-term options if you need liquidity.
If you want, I can help you draft a plan for creating an HUF or suggest specific schemes that fit your risk and liquidity profile. What do you think?
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