The final notice and regulations that allow for the introduction of Tax Free Savings and Investment Accounts (TFSAs) have been approved by Finance Minister Nhlanhla Nene.

This will come into effect from 1 March 2015, the start of the new tax year.

The incentive, said National Treasury in a statement on Friday, is an important tool to encourage South Africans to save more and to reduce household indebtedness and vulnerability.

It complements initiatives and incentives to promote retirement savings and will also support long-term economic growth.

This tax incentive is enabled through section 12T of the Income Tax Act and this notice and regulations. The earnings (interests and dividends) and growth (capital gains) on these products will not attract income, dividends or capital gains tax.

The regulations aim to ensure that appropriate financial products are developed and market conduct practices are in line with the objectives of the financial sector regulatory reform.

“In this respect, it is important that customers are treated fairly, and that the charge structure is kept relatively low to ensure that customers derive maximum benefits from such savings and investments,” said Treasury.

It said TFSAs  may only be issued by regulated institutions such as registered banks, long-term insurers, managers responsible for collective investment schemes, government (through the retail savings bond scheme), mutual banks and co-operative banks.

It said contributions to all tax free savings accounts will be limited to R30 000 during any year and R500 000 over the life of an individual.

However, over time, the balance in these accounts may exceed the R500 000 limit due to accumulated earnings and capital gains.

To enable a smooth introduction of tax free savings, transfers of tax free savings accounts will initially not be allowed during the first year of the incentive until 1 March 2016.

“National Treasury intends to expand the regulations next year to allow individuals to transfer any amount in a tax free savings and investment account (through a set procedure) from one institution or product provider to another.

“A transfer of tax free savings and investment accounts between investors, however, will not be allowed,” Treasury said.

All savings and investment products that have a term of maturity must be accessible within 32 business days from the time that the money is requested, while in the case of other products, it must be paid out within seven business days.