Everyone wants to save tax and that is why all of us want tax free
income. In fact, there is a need to look at various investment
options that offer tax free income in
India. Tax planning is not a bad
thing even the government itself has given many ways to save tax. There
are various investments that offer return without any tax, but, in some cases, you can also get tax exemptions under sec
80C of the Income Tax Act, 1961. Therefore, I have compiled a list of investment
options for tax free income.
Tax Free Income
Tax free income is the income received but not subject to income taxes.
Any profit from investments
is considered as the earning and the same profit is added to the taxable
income. But there are many investments which are not taxable at the time of
maturity. The profit from these investments is not added to the taxable income.
Income received from these investments is called tax-exempt income.
7 Investments for Tax Free Income in India
Here are 7 investment options for tax-exempt income in
India
1. Interest in Saving Account
The saving account is the basic
type of saving scheme. You can open your saving account at any bank or post
office. On your saving bank account, you normally earn 4% interest. But there
are some private banks where you can get up to 6% interest rate on your saving
account. The
interest on your saving bank account (either banks or post office) up to Rs
10,000 is tax-exempt under section 80TTA
from 2013 onwards. Any excess interest on your saving account is taxed at the
rate of your income slab.
2. EPF Account
EPF (Employees Provident
Fund) is a retirement benefits scheme managed and overseen by the Employees
Provident Fund Organisation (EPFO). This scheme is mandatory for the employee
of the private sector. The EPF account gives you all round benefit. You will
get tax exemption on the deposit made in the EPF account under section 80C. You
also earn interest on your EPF account which is higher than the bank fixed deposit or any other government saving scheme but
this interest earning is tax-exempt. There
is no tax on maturity amount of EPF. However, in case of withdrawal happens before 5 years, it’s fully taxable.
3. PPF Account
PPF (PublicProvident Fund) account is a popular retirement saving
scheme and open for the general public. It is one of the best long-term
investment schemes with salaried as well as the self-employed class of
individuals in India. A PPF account can be opened by resident Indian
individuals at any nationalized authorized bank, select post offices and specific
private banks across India. Your deposits made in the PPF account are eligible
for the deduction under section 80C. PPF offers an attractive interest rate and
interest earned on deposits is tax-exempt.
The full maturity amount is also exempted from tax. This makes the PPF account
one of the most popular saving instruments.
4. Life Insurance Policy
The life insurance policy also
gives you tax benefits. You can take a life insurance policy from LIC (Life
Insurance Corporation of India) or any private life insurance company. The
amount of premium paid for a life insurance policy is eligible for the deduction
under section 80C.
The maturity amount of life
insurance policy is also tax-exempt. This
benefit is applicable only for those insurance policies whose sum assured is at
least 10 times to the annual premium. You cannot expect high returns from
insurance plans as insurance plans are not pure investment products.
5. ULIP (Unit Linked Insurance Plan)
A ULIP is a combination of life
insurance along with investment. ULIP plan provides life cover and investment
in different funds for meeting long term goals. ULIPs are suitable for long
term investment horizon to achieve your long-term financial goals. These
financial goals could be children’s higher education, children’s marriage, retirement
planning, etc. The lock-in period for a ULIP is 5 years but you can have a ULIP
with a duration of 10 or 20 or more. The returns out of the policy are
completely tax-exempt.
6. Sukanya Samriddhi Account
Sukanya Samriddhi Account (SSA)
is a Government-backed saving scheme
targeted at the parents of girl children. The government gives the highest
interest rate on this scheme. This scheme is a must if you have a girl child at home. The
scheme is aimed at the betterment of girl
child in the country. The account can be opened at any of the authorized banks
or at any post office. Deposits made in this scheme are exempted from income
tax under section 80C. The maturity amount and annual interest of this scheme are
also tax-exempt.
7. Tax Free Bonds
These
bonds also give you return without any tax. Generally, these bonds
are issued by Government-backed entities.
Some of the public undertakings issue these bonds are IRFC, PFC, NHAI, HUDCO,
REC, NTPC, NHPC, IREDA, etc. The maturity period of these bonds is 10 years or
more. However, such bonds get listed on NSE / BSE after some time and you can
sell and buy these bonds even before their maturity. The maturity amount and
interest received is your tax free income.
These bonds can’t give you a higher interest rate than the government bonds.
Also read: How to start aSIP?
Also read: Benefits of SIP | Advantages of SIP
Also read: What is Atal Pension Yojana?
Also read: All about ELSS | Equity Linked Saving Scheme
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7 Investments for Tax Free
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