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Investments for Tax Free Income Research Team | Posted On Tuesday, December 10,2019, 04:30 PM

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Investments for Tax Free Income



There are just a few investments that offer tax-free income in India. The returns from the most popular investments like fixed deposits and mutual funds are taxed. The capital gains you get from shares are taxed. Yet, there are some investments that offer tax-free income in India.

When you make an investment, it’s very important to gauge the tax efficiency. Tax efficiency is basically after-tax returns from the investment. There are a few investments that give tax-free returns. It’s important to identify them to enjoy high returns on investment.

Let’s take a look at some tax-free investments and their returns to decide which is a good fit. Want to know more about Tax Planning? We at will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial product.

Investments for Tax-Free Income

1. PPF is a Great Tax Saver

The public provident fund or PPF is an excellent investment for tax-free income. PPF enjoys a tax deduction under Section 80C of the income tax act, up to Rs 1.5 Lakhs a year. PPF enjoys Sovereign Guarantee which means you are guaranteed for the Principal and the Interest. PPF offers 7.9% for the October to December 2019 quarter. PPF has a 15-year lock-in.

While PPF offers returns in excess of fixed deposits, what’s special are the tax benefits. PPF enjoys tax benefits under the EEE Tax Regime. The investment in PPF enjoys tax deduction under Section 80C. The interest earned and the amount withdrawn at maturity are tax-free. 

Why PPF?

It’s an excellent long-term investment for retirement. It gives high interest and is very safe. It does have a long lock-in period, so invest only if you are a long term investor.

See Also: All You Must Know About Tax Planning

2. Sukanya Samriddhi Scheme for Girl Child’s Future

Sukanya Samriddhi Scheme (SSY) is an excellent scheme for education, marriage and financial freedom of girl child. It is a Government-backed scheme under 'Beti Bachao Beti Padhao' campaign to help parents of the girl child save and invest for her future. You can open SSY account at designated public and private sector banks or even the post office as a savings account in the name of the girl child.


  • Only parents/legal guardians can open SSY account in the girl child’s name.
  • The girl child must be less than 10 years when the SSY account is opened. The account is operational until the girl child turns 21 years.
  • The SSY account can be opened with just Rs 250. A maximum of Rs 1.5 Lakhs a year can be deposited.
  • Only two SSY accounts are allowed per family. Multiple SSY accounts can’t be opened for the single girl child.

SSY interest: The Sukanya Samriddhi Account offers 8.4% interest for October – December 2019 quarter.

Tax Benefits: SSY is an exempt, exempt, exempt or EEE investment. The principal invested enjoys tax benefits under Section 80C. The interest earned and maturity amount is tax-free.

See Also: Last Minute Tax Planning: What You Should Do?

3. VPF to Save Tax

Voluntary Provident Fund or VPF is a scheme which comes under the traditional Provident Fund Saving Scheme. You can decide on the fixed contribution amount which can be made towards VPF scheme on a monthly basis.

Why VPF?

  • It’s a safe investment.
  • Easy to transfer in case of the job change.
  • Easy to open VPF account.
  • Interest at 8.65%.

You (employee) can make contributions towards provident funds on a voluntary basis. The employer doesn’t have to make contributions towards VPF. The interest rate of VPF is same as EPF. There’s a lock-in period of 5 years. The interest rate on VPF is decided by the Government of India.

See Also: What are the Steps Involved in Tax Planning?

Tax Benefits of VPF:

VPF is one of the best tax-saving instruments around. It enjoys the EEE tax benefit. The investment enjoys Section 80C tax benefit. The interest earned and the amount withdrawn are tax-free.

VPF currently offers 8.65% interest. This is the highest among conservative investments. Coupled with tax benefits this makes for a really great investment.

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