Investments that we do in the form of mutual funds, stock market, etc. attract tax. At times can be discouraging also. So, if you want to do investments that can help you in saving taxes, then you are at the right place.
Tax-free bonds are issued by a government enterprise to raise money for definite purposes. They offer fixed income and are similar to fixed deposits. The risk of default is minimum here and returns are attractive. The income that you earn from them is absolutely tax-free, under section 10 of the Income-tax act. The maturity period is longer here i.e. 10 years or more generally.
Through the stock exchange, you can buy or sell these bonds. Liquidity is lesser.
So, If you do have the patience and ability to wait for a longer period and if you want a fixed return with minimum risk then, it can be a good option for you.
2. Public provident fund(PPF):
You can invest a minimum of 500rs. and maximum up to 1.5 lakhs. You can invest in a lump sum or in installments. You have to make investments at least once a year to ensure that your account remains active.
It has a lock-in period of 15 years on investments. After then, if you wish you can extend this period by 5 years also.
Income tax exemption is available on the Principal amount of investment. Total tax accrued in the account is also tax-free. The total principal amount of investment in one financial year should not exceed 1.5 lakhs. The redemption amount is also tax-free.
3. Unit Linked Insurance Plan(ULIP):
It is a mixture of insurance and investment. So, it can give you good returns with assured family protection.
You have to pay a minimum of 1500 rs. every month. The Lock-in period is 3 to 5 years and you will have to pay a premium up to that period.
ULIP gives tax benefits at every stage of investment i.e. at the time of investment, on earnings, and on redemption amount. The premiums which are paid are eligible for deduction under section 80c of the income tax act.
4. Sukanya Samiriddhi Yojana:
SSY is a government-run scheme designed especially for the welfare of female children. Up to 10 years of your girl, you can invest in it. The minimum amount of the deposit is 250 rs. per year. Maximum investment can be up to 1.5 lakhs.
Amount invested is eligible for deduction under 80c of the Income-tax act. The interest earned and the amount of redemption are also tax-free.
5. National Savings Certificate(NSC):
The minimum amount required to open an NSC account is 1000rs. You can deposit the money in multiples of rs. 100. There is no maximum limit for investment.
It has a lock-in period of 5 years generally.
The principal that is invested is eligible for deduction under section 80c of the Income-tax act along with interest income except for the final year.