Tax free investments in India are crucial for smart financial planning. They help you reduce your tax liability while securing your financial future. There are several options available that provide tax saving benefits under various sections of the Income Tax Act, 1961, such as Section 80C, 80D, and 10(10D). In this blog, we will discuss some of the top tax free investments in India for 2024-25, which offer not only tax benefits but also opportunities for long-term wealth growth.
With several tax saving options available, selecting the right one can often be confusing.
The table below highlights some of the best tax saving investments under the Income Tax Act 1961, helping you choose a plan that aligns with your financial goals and risk appetite.
|
Tax Saving Options |
Returns* |
Lock-in Period |
Tax Benefits Under Income Tax Act, 1961 |
|
Tax Saver FDs |
5.5% to 7.75% p.a. |
5 Years |
Section 80C |
|
Unit Linked Insurance Plan (ULIP) |
11% to 20% p.a. (depending on the chosen plan) |
5 Years |
Section 80C and 10 (10D) |
|
Public Provident Fund (PPF) |
7.1% p.a. |
15 Years |
Section 80C |
|
Employee Provident Fund (EPF) |
8.15% p.a. |
5 Years |
Section 80C |
|
Sukanya Samriddhi Yojana (SSY) |
8% p.a. |
21 Years |
Section 80C and 10 (10D) |
|
National Pension Scheme (NPS) |
9% to 12% p.a. |
3 Years |
Section 80C, 80 CCD(1B), and 80 CCD(2) |
|
National Savings Certificate (NSC) |
7.7% p.a. |
5 Years |
Section 80C |
|
Life Insurance |
Depends on policy |
Varies from plan to plan |
Section 80C; Maturity amount tax free if the policy term is more than 2 years |
|
Term Insurance |
No returns |
No lock-in |
Tax free death benefit |
|
Health Insurance |
No returns |
No lock-in |
Premiums up to Rs. 50,000 for self, spouse, and dependent parents under Sec 80D; Additional Rs. 25,000 for senior citizen parents |
|
Senior Citizen Saving Scheme (SCSS) |
8.20% p.a. |
5 Years |
Section 80C |
|
ELSS Fund |
Returns vary as per the performance of underlying assets |
3 Years |
Section 80C |
Tax-saver FDs are bank fixed deposits with a lock-in period of five years, allowing you to save taxes under Section 80C.
Tax Benefits of Tax-Saver FD:
Section 80C Deductions: Investments up to ₹1.5 lakh qualify for tax deductions.
Interest Income: Although taxable, interest income up to ₹40,000 (₹50,000 for senior citizens) is exempt from TDS.
ULIPs combine investment and insurance, offering you tax saving opportunities while protecting your family’s financial future. This tax saving investment option allows you to invest in equity, debt, or a mix of funds, according to your risk appetite.
Tax Benefits Under ULIP:
Section 80C Deductions: You can claim deductions up to ₹1.5 lakh per year on the premium paid.
Tax Free Death Benefit (Section 10(10D)): The payout to the nominee in case of the policyholder's death is tax free.
Tax Free Maturity Benefit (Section 10(10D)): If your total premium payments are below ₹2.5 lakh annually, the maturity proceeds are tax free.
PPF is a government-backed, long-term savings option with a 15-year lock-in period, offering guaranteed returns and tax benefits.
Tax Benefits of PPF:
EEE (Exempt-Exempt-Exempt) Category: Investment, interest, and maturity proceeds are all tax free.
Section 80C Deductions: Investments up to ₹1.5 lakh per year are eligible for tax deductions.
Tax Free Interest: The interest is compounded annually, and there is no tax liability on the amount earned.
EPF is a retirement savings scheme for salaried employees. Both employees and employers contribute a portion of the salary towards the fund.
Tax Benefits of EPF:
Tax Free Contributions: Employee contributions qualify for tax deductions under Section 80C.
EEE Category: Interest earned and the final maturity amount are tax-exempt if withdrawn after five years of continuous service.
Employer Contributions: Not taxable in the hands of the employee, making it a popular tax saving option.
Sukanya Samriddhi Yojana (SSY) designed to secure the future of girl children, this scheme allows parents to save for their daughters' education and marriage. It comes with attractive interest rates and tax benefits.
Tax Benefits Under SSY:
Section 80C Deductions: You can claim deductions up to ₹1.5 lakh annually.
Tax Free Interest Income: The interest earned is fully tax free, making it one of the best tax saving investment options in India.
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National Pension Scheme (NPS) is a government-sponsored retirement planning scheme that allows you to accumulate a pension corpus and avail tax saving benefits.
Tax Benefits of NPS:
Section 80C Deductions: Contributions up to ₹1.5 lakh qualify for tax deductions.
Additional Deduction (Section 80CCD(1B)): An extra deduction of ₹50,000 is available for voluntary contributions.
Tax Free Partial Withdrawal: Up to 25% of the corpus can be withdrawn tax free after 60 months of service.
NOTE:
Tax benefits are available only for contributions to the NPS Tier I account.
Contributions to the NPS Tier II account do not qualify for any tax benefits.
NSC is a secure investment option offering guaranteed returns with a lock-in period of five years.
Tax Benefits of NSC:
Section 80C Deductions: Investments up to ₹1.5 lakh qualify for tax deductions.
Tax Saving on Accrued Interest: Interest earned is considered reinvested and qualifies for tax deductions.
Life insurance is not just for securing your loved ones' future but also offers tax saving benefits.
Tax Benefits of Life Insurance:
Section 80C Deductions: Premiums paid up to ₹1.5 lakh are eligible for tax deductions.
Tax Free Death Benefit: The death benefit received by the nominee is fully tax free.
Tax Free Maturity Proceeds: Maturity benefits are tax free if certain conditions are met under Section 10(10D).
Disclaimers
All savings are offered by the insurer in line with IRDAI-approved insurance plans.
Tax benefits depend on current tax laws and may change. Standard terms and conditions apply.
Under Section 80C, a tax deduction of up to ₹1.5 lakhs is available annually, while Section 10(10D) offers tax benefits for investments up to ₹2.5 lakhs per year for policies purchased after February 1, 2021. Tax benefits and savings may vary as tax laws change.
Term insurance provides a high coverage amount at low premiums, making it an essential part of tax free investments.
Tax Benefits of Term Insurance:
Premium Deductions (Section 80C): Premiums up to ₹1.5 lakh qualify for tax deductions.
Tax Free Death Benefit: The payout to beneficiaries is tax free.
Health insurance helps manage medical costs by covering services like doctor visits, hospital stays, and prescriptions. You pay monthly premiums to stay covered, and the insurance company shares the expenses, ensuring financial protection for your health.
Tax Benefits of Health Insurance:
Section 80D Deductions: Deduct up to ₹25,000 for self, spouse, and children, and ₹50,000 for senior citizen parents.
Preventive Health Check-Ups: Additional deductions of ₹5,000 are allowed.
Senior Citizen Saving Scheme (SCSS) is specially designed for senior citizens (60 years and above). It offers one of the highest interest rates among small savings schemes.
Tax Benefits of SCSS:
Section 80C Deductions: You can claim tax deductions on investments up to ₹1.5 lakh annually.
TDS Exemption: No Tax Deducted at Source (TDS) if the interest earned is ₹50,000 or less in a financial year.
Tax Free Maturity: The maturity amount, including interest, is tax free.
ELSS funds invest in equity markets and come with a lock-in period of three years, making them one of the shortest lock-in tax saving investments.
Tax Benefits of ELSS:
Section 80C Deductions: Investments up to ₹1.5 lakh qualify for tax deductions.
Long-Term Capital Gains Tax: Gains above ₹1 lakh are taxed at 10%.
SIP Facility: You can invest in ELSS through a Systematic Investment Plan, where each SIP instalment has a three-year lock-in.
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Tax saving investments are an essential part of financial planning. By choosing the right tax free investments in India, you can reduce your tax burden and grow your wealth. Popular tax saving sections include Section 80C, 80D, 80CCD (1B), and 10(10D). These are some of the top tax saving schemes you can consider.
Invest in Tax Saving Instruments: Use PPF, NPS, ELSS, and FDs to save up to ₹1.5 lakh under Section 80C.
Health Insurance: Reduce taxable income by claiming premiums under Section 80D.
Home Loan Interest: Claim interest deductions under Section 24 and extra benefits under Section 80EE.
Rent and Housing: Avail of HRA exemption for rented accommodation.
Donations & Charity: Donate to eligible organisations to get tax exemptions.
Choose the Right Tax Regime: Evaluate between the old and new tax regimes for maximum savings.
Tax free investments in India are essential for reducing your tax liability and securing a financially stable future. By choosing the right tax saving options such as ULIPs, PPF, SSY, and ELSS, you can maximise your savings and achieve your financial goals. Make informed decisions based on your risk tolerance and long-term needs to optimise your tax savings.
Life Insurance
Health Insurance
Pet Insurance
Motor Insurance
Travel Insurance
Commercial Insurance
