Investors are typically more inclined towards a tax saving instrument which is offering tax-free income along with the conventional tax deduction on investments under various sections of the Income Tax Act.
New Delhi: A person has to shortlist tax saving investment in advance in order to maximise the tax savings and benefits on investing in such instruments. All the tax saving investment options available provide tax breaks, deductions according to the prescribed guidelines by the government. The variation in the specifications of tax saving instruments arises according to the tax benefits offered by the tax saving option.
Investors are typically more inclined towards a tax saving instrument which is offering tax-free income along with the conventional tax deduction on investments under various sections of the Income Tax Act. The Income Tax Department has capped the upper ceiling of the income tax deductions available under various sections such as Section 80C, Section 80E, Section 80D, Section 80DD, Section 80EE, Section 80B, etc.
Here are 5 tax saving investments with tax-free returns
- Public Provident Fund (PPF), Employees Provident Fund (EPF), Voluntary Provident Fund (VPF), Unit Linked Insurance Plans (Ulips) and Sukanya Samriddhi Account are the tax savings instruments which offer double income tax benefits. A person investing in these tax investment options qualifies for the tax deduction at the time of investment and the income generated out of these options is also tax-free.
- PPF, EPF, VPF and Sukanya Samriddhi Account are the investment options which are highly preferred by most of the salaried-class people and middle-income groups due to their relatively higher rate of returns as compared to traditional tax savings fixed deposits and other tax savings schemes offered by banks and post offices and insurance scheme.
- On the other hand, Ulip is an integrated tax saving instrument designed to serve multiple purposes of tax deduction and insurance scheme. Ulips can be a good tax saving investment option for people who are investing with the purpose of long-term wealth building along with tax breaks. The proceeds of the Ulip fund are tax-free for withdrawals after 5 years or after the completion of the respective maturity period.
- The government has prescribed a fixed rate of 8.65 per cent for both EPF and VPF, while, PPF fetches an interest of 8 per cent. These three tax saving investment options come with various other benefits such as loan against the deposit amount, premature withdrawal facility. Further, these are best suited for salaried persons having a perspective of long-term money-making without involving market risk.
- Sukanya Samriddhi Account is an investment option specially designed for the girl child. SSA offers an interest of 8.5 per cent. The proceeds from the SSA are tax-exempt on the completion of the maturity date.