7 Investments for Tax Free Income in India

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 Income in India