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Tax Saving Investment Options

Looking to grow your money while saving on taxes? There are several tax-free investment options in India that can help you achieve your financial goals. This article introduces six popular choices: life insurance, Public Provident Fund (PPF), New Pension Scheme (NPS), pension plans, tax-saving deposits, and Senior Citizens Saving Scheme (SCSS). Each option offers unique benefits and tax advantages under different sections of the Income Tax Act. Understanding these investments can help you make smarter financial decisions and save money on taxes.

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Tax Saving Investment Options

Tax Saving Investment Options for Tax-Free Income

Tax Saving Investment options
July 15, 2024

Table of Content

 

Investors are always looking for options that generate tax-free income. The good news is that there are plenty of tax free investments in India for investors.

Listed below are tax free investments that meet a variety of needs and financial goals:

Sr No. Best Tax Free Investments Maximum Annual Investment Tax Benefits
1.

Life Insurance

 Rs. 1,50,000 (Rs 1.5 lakhs) Under Section 80C and Section 10(D)
2.

PPF (Public Provident Fund)

 Rs. 1,50,000 (Rs 1.5 lakhs) Under Section 80C and Section 10(D)
3.

NPS (New Pension Scheme)

 Rs. 1,50,000 (Rs 1.5 lakhs) Under Section 80CCD
4.

Pension

 Rs. 1,50,000 (Rs 1.5 lakhs) Under Section 80CCC
5.

Life Insurance

 Rs. 1,50,000 (Rs 1.5 lakhs) Under Section 80C
6.

SCSS (Senior Citizens Saving Schemes)

 Single Holding - Rs. 9 Lakhs
Joint Holding - Rs. 15 Lakhs		 Under Section 80C

  • Life insurance

    Insurance helps individuals meet a variety of financial goals of the individual and his family. All types of life insurance plans including endowment, term, and moneyback qualify for tax benefits on entry and redemption.

    Here are some ways insurance can help achieve life stage goals:

    1. Financial cover against loss of life, which helps the family cope financially in the breadwinner's absence

    2. Child Education

    3. Child Marriage

    4. Buying a House

    Maximum annual investment: Rs 1,50,000 (Rs 1.5 lakhs)

    Tax benefit: Under deductions under 80C and Section 10(D)

    Investments in ULIPs (unit-linked plans) are another way for individuals to achieve financial goals the tax-free way. ULIPs are linked to markets and more suitable for investors with a medium to high risk profile.

    Tax benefits on ULIPs are similar to those offered on other life insurance plans as per tax structure in India.

  • Public Provident Fund (PPF)

    PPF is a government-sponsored savings and retirement planning direct tax free investment. It is beneficial for individuals without a structured pension plan.

    The interest rate on the PPF is linked to the debt market. Money is locked in for a period of 15 years, although partial withdrawals are permitted, the earliest one being after the sixth year. Redemption proceeds are tax-free in the hands of investors.

    Maximum annual investment: Rs 1,50,000 (Rs 1.5 lakhs)

    Tax benefit: Under Income Tax Section 80C and Section 10(D)

  • New Pension Scheme (NPS)

    Regulated by the Pension Funds Regulatory and Development Authority or the PFRDA, the New Pension Scheme (NPS) is specifically designed to help individuals save for retirement.

    Any citizen of India in the 18 - 60 years age bracket can participate in it. It is cost effective since fund management charges are low. Money is managed in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).

    Given the varied options, NPS is beneficial for individuals, with varying risk appetites, looking to set aside money towards retirement.

    Maximum annual investment: Rs 1,50,000 (Rs 1 lakh)

    Tax benefit: Under Section 80CCD

    The aggregate limit of deduction under all the sub-sections of Section 80C, like 80CCD, 80CCC cannot exceed Rs 1.5 lakhs.

  • Pension

    Pension is a form of life insurance that provides for a different need. While protection plans (like term plans) are geared to financially secure the individual's family on death, pension plans aim at providing for the individual and his family if he lives on.

    Maximum annual contribution: Rs 1,50,000

    Tax benefit: Under Section 80CCC

    The aggregate limit of deduction under all the sub-sections of Section 80C, like 80CCD, 80CCC cannot exceed Rs 1.5 lakhs.

  • Deposits

    The 5-year tax-saving bank fixed deposits as also post-office time deposits offer tax free income. They are one of the best tax free investments in India for individuals with low risk appetite looking to save money over the long-term.

    Maximum annual investment: Rs 1,50,000 (Rs 1.5 lakhs)

    Tax benefit: Under Section 80C

  • Senior Citizens Saving Scheme (SCSS)

    The SCSS is a government-sponsored scheme to offer financial security to senior citizens. Individuals over 60 years of age are eligible to invest in the scheme. Investors can make a one-time deposit under subject to the minimum investment amount of Rs 1,000 and a maximum of Rs 15 lakhs (in case of joint holding) and Rs 9 lakhs (single). The lock-in is for 5 years offering interest payable on a quarterly basis with the interest being taxable in the year of accrual and subject to tax deduction at source.

    Tax benefit: Under Section 80C

To learn more about the Income Tax Slabs rates visit - Income Tax Slabs FY 2023-24

FAQs on Tax Saving Investment

Q: Which investment is totally tax free?

A. There are many tax-free investment options, investors can choose from them and deposit their hard earned money in, life insurance plans, public provident fund (PPF), new pension scheme (NPS), five year bank tax saver fixed deposit (FD), EPF, five year post office term deposit, and senior citizens saving scheme (SCSS).

Q: Which investment is eligible for tax deductions under Section 80C?

A. The list of investment options that also offer tax saving benefits includes the following:

-PPF (upto Rs 1.5 lakh tax saving exemption under Section 80C)-ELSS (upto Rs 1.5 lakh tax saving exemption under Section 80C)

-Senior citizens saving schemes (upto Rs 1.5 lakh tax saving exemption under Section 80C)

-Sukanya samriddhhi yojana (upto Rs 1.5 lakh tax saving exemption under Section 80C)

-Five year tax saver bank FD (upto Rs 1.5 lakh tax saving exemption under Section 80C)

-National pension scheme (upto Rs 1.5 lakh tax saving exemption under Section 80C and an additional Rs 50,000 tax exemption can be claimed under Section 80CCD (1B)

-National savings certificate (upto Rs 1.5 lakh tax saving exemption under Section 80C)

-Unit linked insurance plans (upto Rs 1.5 lakh tax saving exemption under Section 80C)

-Life insurance premium (upto Rs 1.5 lakh tax saving exemption under Section 80C)

Q: Which investment is best for income tax exemption?

A. Among the many tax saving investment options to choose from, the right one differs from one investor to another. The best investment for income tax exemption would be based on your risk appetite, investment horizon, tax liability and financial goal. For example, if you have alow risk appetite, then you can invest in PPF or five-year tax saver bank FD. On the other hand, if you have a higher risk appetite, you can invest in ELSS for tax saving purpose and wealth creation.

Q: How much total income is tax free?

A. Under old tax regime, the tax-free income slab is up to Rs 2,50,000 for Individuals, HUF below 60 years aged and NRIs, up to Rs 3,00,000 for senior citizens aged above 60 years but less than 80 years and up to Rs 5,00,000 for super senior citizens aged above 80 years.

On the other hand, in the case of the new tax regime, those having up to Rs 3 lakhs annual income fall into tax-free category.

If you have a higher income than the tax-free slab, you can utilise the tax saving ways to minimise your income tax outgo every year.

Q: How can I save tax on my salary?

A. You can utilise various tax saving ways to minimise the income tax outgo from your salary every year. Tax saving ways include life insurance premiums, ELSS, PPF, five-year tax saver bank FD, ULIPs, home loan EMIs, etc.

Source links

https://economictimes.indiatimes.com/wealth/tax/five-tax-saving-investment-options-to-get-tax-free-returns/articleshow/98862078.cms?from=mdr

https://www.npstrust.org.in/index.php/benefits-of-nps#:~:text=Employees%20contributing%20to%20NPS%20are,lakh%20under%20Sec%2080%20CCE.

https://cleartax.in/s/tax-free-income-in-india

https://cleartax.in/s/income-tax-slabs

https://www.nsiindia.gov.in/(S(xawufvfg11uef0exoq13eevt))/InternalPage.aspx?Id_Pk=62

https://groww.in/blog/returns-from-best-tax-saving-instruments

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Note - Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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