While investing your money in financial products or tax saving instruments, always look at the tax benefits offered. If the investment you make is taxable, you will not get much return, as taxes eat up part of your return.
In this article, you will learn about the investments that not only help you save tax, but also help you earn tax-free income.
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The equity-linked saving scheme is a type of equity diversified mutual fund. ELSS enjoys the Exempt, Exempt, Exempt (EEE) benefit. The investment you make in ELSS will be tax exempt up to Rs 1.5 Lakhs a year under Section 80C. The returns and the money you get at withdrawal are tax-free.
If you want to earn good returns in the stock market, you must stay invested for at least 3-5 years. ELSS has a lock-in period of 3 years. So, you will be forced to stay invested, which helps you get high returns. (Returns which beat inflation).
As returns from ELSS are market-linked, there is no guaranteed return. You bear risk to get higher returns. ELSS income is tax-free as it invests over 90% of its corpus in equities.
Employee Provident Fund is another option, which helps salaried employees save tax and accumulate a tax-free corpus. Under the EPF scheme, an employee has to contribute 12% of his basic salary each month, towards his EPF account. An equal amount is contributed by the employer. Only 3.67% of employer contribution goes into the EPF account. The remaining 8.33% goes towards the EPS account.
The employee's contribution will be exempt up to Rs. 1.5 lakh a year under Section 80C. The employers contribution does not qualify for this tax deduction. Every year the government declares interest on both employer and employee share towards EPF, which is tax-free in nature. The withdrawal from EPF at retirement is also completely tax-free.
The Public Provident Fund (PPF) is a favourite among several investors, as it is backed by the Government of India and offers attractive interest. Currently, PPF offers 7.6% rate of interest for the Quarter (January to March, 2018). This interest is up for review every 3 months. Returns you get from PPF are fully tax exempt.
You can start investing in PPF with a minimum of Rs 500 and the maximum limit is Rs 1,50,000 in a financial year. The PPF has a lock-in period of 15 years. It can be further extended for 5 more years. PPF is suitable for investors who do not want to take much risk in investments.
PPF enjoys the EEE status. The money invested in PPF will be tax exempt up to Rs 1.5 Lakhs under Section 80C of Income Tax Act. The money accumulated and withdrawn at maturity, are also tax-free.
Traditional insurance plans include Endowment life insurance Plans, Money-back or Whole life insurance plans. Traditional insurance plans provide multiple benefits such as risk cover, fixed sum assured, safety and the tax benefit. Premiums you pay on traditional insurance plans depends on entry age, life coverage and the period for which coverage is required.
The premium you pay on Traditional insurance plans is exempted from tax under Section 80C of the Income Tax Act. The maturity value and the death benefit are also tax-free. Be Wise, Get Rich.
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