Investing in tax-free options can help you maximize your returns by reducing the amount of tax you pay on your earnings. In India, several investment options offer tax benefits, helping you grow your wealth while minimizing your tax liability. Here are ten of the best tax-free investment options available in India:
Top 10 Best Tax-Free Investment Options in India
1. Public Provident Fund (PPF)
Public Provident Fund (PPF) is a government-backed savings scheme with tax-free interest and maturity proceeds. Contributions to PPF qualify for tax deductions under Section 80C of the Income Tax Act. The interest earned and the amount received at maturity are tax-free.
2. National Pension System (NPS)
National Pension System (NPS) offers tax benefits on contributions under Section 80CCD(1) and Section 80CCD(1B) of the Income Tax Act. Contributions up to ₹1.5 lakh are eligible for a tax deduction under Section 80C, and an additional ₹50,000 can be claimed under Section 80CCD(1B). The returns on NPS investments are tax-deferred, and partial withdrawals are tax-free under specific conditions.
3. Equity-Linked Savings Scheme (ELSS)
Equity-Linked Savings Scheme (ELSS) is a type of mutual fund that offers tax benefits under Section 80C. While the capital gains from ELSS are subject to tax, long-term capital gains exceeding ₹1 lakh are taxed at 10% without indexation. The principal invested and dividends received are tax-free.
4. Tax-Free Bonds
Tax-Free Bonds issued by government-backed entities such as National Bank for Agriculture and Rural Development (NABARD) and Housing and Urban Development Corporation (HUDCO) offer tax-free interest income. These bonds are typically long-term investments with a fixed interest rate and provide tax benefits on the interest earned.
5. Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is a savings scheme specifically for the education and marriage of a girl child. Contributions to SSY qualify for tax deductions under Section 80C, and the interest earned, as well as the maturity amount, are tax-free.
6. Senior Citizens Savings Scheme (SCSS)
Senior Citizens Savings Scheme (SCSS) offers tax benefits on the interest income earned, which is taxable under other circumstances. While the interest earned is subject to tax, the principal investment is eligible for tax deductions under Section 80C.
7. Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan (ULIP) combines insurance and investment. Contributions to ULIPs qualify for tax deductions under Section 80C, and the maturity proceeds are tax-free if the premium paid does not exceed 10% of the sum assured.
8. Post Office Monthly Income Scheme (POMIS)
Post Office Monthly Income Scheme (POMIS) offers regular monthly income with a fixed interest rate. The interest income is taxable, but the scheme provides a safe investment option with guaranteed returns.
9. Gratuity Received on Retirement
Gratuity received on retirement is tax-free up to a specified limit under Section 10(10) of the Income Tax Act. For government employees, the entire gratuity amount is tax-free, while for non-government employees, a portion of the gratuity is exempt from tax.
10. Insurance Premiums
Insurance premiums paid towards life insurance policies are eligible for tax deductions under Section 80C. Additionally, the maturity proceeds of life insurance policies are tax-free under Section 10(10D), provided the premium paid does not exceed 10% of the sum assured.
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