When looking for an ideal investment plan, we all look for certain benefits. To maximize the benefits and tax savings, one needs to narrow down and shortlist multiple tax saving investments. These options offer tax breaks and deductions in adherence to the governmental guidelines.
If you are an investor, you might have more preference towards a tax saving instrument that offers not just a tax deduction, but also a tax-free income on your investments that fall under various different sections of the Income Tax Act. According to the Income Tax Department, the income tax deductions are available under multiple sections, some of them namely Section 80C, Section 80D, Section 80E, Section 80DD, Section 80EE, Section 80B, and the likes.
So if you are an investor looking for where to invest money, let us explore some tax saving investments that can give you tax-free returns.
Here are 5 such tax-saving investment options:
- Public Provident Fund (PPF): The PPF or Public Provident Fund serves the purpose of mobilizing small savings, and offers investment with reasonably good returns and income tax benefits.
- Employees Provident Fund (EPF): The EPF or Employees Provident Fund is another tax savings tool where the employer and employee both contribute an equal savings amount, that can be availed when switching jobs or during retirement.
- Voluntary Provident Fund (VPF): The VPF or Voluntary Provident Fund is an instrument where the employee voluntarily contributes towards his/her provident fund account. It is another tax-free tool.
- Unit Linked Insurance Plans (ULIPs): Unit Linked Insurance Plans (ULIPs) serves as an integrated instrument that provides both insurance and investment to the investors, along with dual tax benefits.
- Sukanya Samriddhi Account: The SSA or Sukanya Samriddhi Account is designed for the girl-child, and encourages parents to save funds for the education of their daughters. This investment option also provides tax-free benefits.
If you are investing in any of these five tax saving options, then you are also eligible for tax deduction at the time of making the investment. Public Provident Fund, Employees Provident Fund, Voluntary Provident Fund and Sukanya Samriddhi Yojana are options that are highly preferred by individuals belonging to the middle-income groups and the salaried working class. This is because these plans have higher rate of returns as compared to traditional fixed deposits and other tax savings schemes offered by banks, post offices, and the likes.
EPF and VPF have a fixed, government-prescribed rate of 8.65 percent, whereas PPF has an interest of 8 percent. Other benefits that come with these three investment options are: facility for premature withdrawal, loan against the deposited amount, etc. Sukanya Samriddhi Account is created for the girl child and offers an interest of 8.5 percent. It offers tax-free benefits after completing the maturity period. These options are ideal for working class salaried individuals who want to build their wealth in the long-term but don’t want to be exposed to market risks.
On the other hand, ULIP as a tax saving option purports to serve dual financial needs of the consumer – investment opportunities in different types of fund options as well as life insurance cover for their loved ones. It is a beneficial option for individuals that are interested in taking advantage of the equity markets, are committed to fulfilling long-term life goals and want to receive tax benefits – all from the same plan. It is one of the best investment options out there.