7 Best Tax Free Investment Options in India

Tax free

7 Best Tax Free Investment Options in India

If you receive fat paycheck on the first day of every month, but don’t know where to invest in and you end up spending more or paying more tax, then this 7 Best Tax Free Investment Options in India is for you.

Have you seen advertisements on social media about mutual fund investment? They say mutual funds is totally tax free investment and can make you financially secure. 

Well, that’s a half truth. Any investment specified u/s 80C of the Income Tax Act is tax free but limited to 1,50,000 only. Beyond the limit your income is taxable. That means though it is tax free investment, but has some limitation.

Still Confused, let us take an example.

If you earn 6,00,000 and  want to invest in mutual funds, say 2,00,000 but limit as per income tax act is 1,50,000 under 80C. So it tax you on 4,50,000 (6,00,000-1,50,000) no matter how much more you invest beyond the limit.

Same goes with all 7 tax free Investment I have mentioned below. I rarely recommend people invest in mutual funds as they are risky and we cannot figure out whether the fund will perform well.

These are some tax free investment which offers fixed tax free returns and exemption from tax on investment.

Life Insurance Policy

If you are Karta (Sole earning person) in the family, you must have a plan to save your family from the disastrous situation. Life insurance is a must and top priority investment to secure future of your family and cover your hard earned money.

All insurance companies offers life cover policy, health policy and cash flow based policy.

In life cover plan, you pay low premium till person is alive, if because of some circumstances if that person die, only then his family makes a claim. 

In health-related policy, mentioned diseases or accident related incidents only under those conditions you get a claim.

But for both, you get no returns on investment (premium)

Cashflow policy offer you return on investment, which you pay periodically and some time they offer dividend or bonus too. But most important, you get both life cover and heath cover.

Never forget to read all documents carefully with insurance companies. Do not trust the agent blindly.

Public Provident Fund

PPF is not the great investment but is only for low risk takers.

 They usually offer around 8% return on investment with compounding for the long period and they lock your fund for 5 years. After five years you can withdraw partially. 

PPF is of two parts – Employees contribution and Employers contribution.

Employees contribution is fully exempt from tax while Employer’s contribution is fully taxable in the hands of employee.

Bonds

 Bonds are the form of securities through which government or private corporation borrow money from investors for the long term. 

They offer guaranteed returns, and risk free investment options.

These are long term and tax free investment plus no tax on interest income on maturity. It is beneficial to low risk takers and retired person to generate a regular income.

Sukanya Samriddhi Scheme

 Samriddhi Yojana is a government scheme to help parents save for education and marriage of the girl child from her age less than 10 years and till 21 years. Scheme can cover only two daughter from each family.

Maximum investment is Rs. 150000 annually with a minimum investment of Rs. 500. You can open an account in offline mode in a bank in the name of your daughter and pay the monthly installment. 

Benefits of Sukanya Samriddhi Scheme

Higher Interest Rate 8.50%

Tax exemption.

Securing your daughter’s future.

CSIP ( Century Systematic Investment Plan) by Aditya Birla Capital

CSIP ( Century Systematic Investment Plan) by Aditya Birla Capital

 Century SIP is the mutual fund SIP plus free life insurance offered with the fund. Yes, I Do not recommend Mutual Fund, but this is different. 

 If you invest in this fund you get free life cover with minimum investment of Rs. 500. That is amazing ! I am not advertising this fund but this is a great deal.

 How it works?

 For 1st year you get insured for 10 times your investment (If Rs. 500 per month than Rs. 500).

 For 2nd year you get insured for 50 times your investment (If Rs. 500 per month than Rs. 25000).

 For 3rd  year you get insured for 100 times your investment (If Rs. 500 per month than Rs. 50000).

 It does not end here, if you wish to discontinue you can, but your insurance is valid till 60 years of age.

Real Estate Investment.

After RERA Act and demonetization real estate rates are sharply fallen. It brings great opportunity for the buyer to purchase property. The only liability you should have on your balance sheet is Home Loan.

 Home loan interest is exempt from tax up to 2,00,000 for first house and another 200000 for the second house (addition to 80C). Also, you get exemption on principal u/s 80C.

You must have your owned land to live peacefully or you can rent is to earn passive income.

Debentures

Debentures are the form of securities through which private corporations borrow money from investors for the long term. These are most secure investment of all others.

They offer guaranteed returns, and risk free investment option.

These are long term and tax free investment but taxed on interest income received. It is beneficial to low risk takers and retired person to generate a regular income.

These are some tax free investment option you must own to make yourself financially secure. This investment options may not offer you above average return compared to stock market, but guarantees fixed and stable income.

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Do not Invest without carefully analysing the facts, more returns bring more risk and unstable portfolio.