Tax Free Investments: Best Tax Free Investments in India

2024-03-12

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Which are the best tax free investments in India?

Whether you are a millennial paying tax for the first time or a regular taxpayer, the approach of tax season always brings with it tax saving season as well. Many of us go helter-skelter looking for investments and instruments to help us in saving tax. In this pursuit, many of us forget that the primary purpose of an investment is investing, not just tax-saving.

Here’s a list of the best tax-free investments in India, which will do a lot more than saving your taxes.

PPF: Public Provident Fund is one of the excellent tax-free investments offered by the government for retirement planning. It is especially useful if you do not have a structured plan for your pension. PPF investments are linked to debt markets, and have a lock-in duration spanning 15 years. You can partially withdraw a sum after 6 years. Proceeds from PPF are exempt from tax for investors.

The maximum yearly investment which is tax-free under PPF is Rs.1.5 lakhs, and tax benefits are available under Sections 80C.
NPS: The New Pension Scheme is a scheme from the Pension Funds Regulatory and Development Authority (PFRDA). It is another instrument that helps with retirement planning. The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement. If you are in the age-group of 18 to 60 years, you can invest in NPS. It has low charges for fund management and makes for an easy investment. Investments are made in three different asset profiles- equity, corporate bonds, and government securities. It provides a diversified risk investment.
Any individual who is Subscriber of NPS can claim tax benefit under Section 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE. An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.
SCSS (Senior Citizens Saving Scheme): This is a tax-saving scheme devised specially for resident senior citizens 60 yrs or over the age of 60 years. You can put in a one-time deposit of minimum Rs.1000 and maximum Rs.15 lakhs. The deposit matures after 5 years from the date of account opening but can be extended once by an additional 3 years. Interest is payable every 3 months, and is subject to TDS. Tax benefits of this scheme can be availed as per Section 80C.
Life insurance: Life insurance, especially term insurance, is a necessity for everyone. It is one of the first financial decisions that you should make once you start earning for yourself. It not only helps you in tax-saving, but also secures your family against eventualities. Life insurance plans provide tax benefits as per Sections 80C and 10(10D) of the Income Tax Act.

Term insurance is a great choice as it provides a large sum assured for a relatively lower premium. And you don’t even have to worry about losing all your premiums with plans like iSelect Smart 360 term plan, which offer a return of premium option.
ULIPs: Unit-Linked Insurance Plans are a unique combination of insurance and investment. These tax-free investments offer a life cover along with a choice of investments as per your risk appetite. Your premiums are divided into both instruments, and you hence do not have to invest in two different instruments. ULIPs follow the EEE or exempt-exempt-exempt rule. It means that they are exempt from taxes on three aspects- investment, interest on investment, and income earned from investment.

Conclusion: Saving tax is essential, but make sure that your investment decisions are not guided by one motive alone. You should not regret putting your money in them later as it is for the long haul.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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