As an investor, it is crucial to seek investment options that not only help achieve your financial goals but also offer tax* benefits. Tax-free investments in India play a significant role in wealth creation and enable you to meet various financial objectives.

In addition to contributing to wealth creation, these tax-free investments also provide avenues for minimising your tax liabilities, thereby maximising your overall returns. Incorporating tax-saving investments options into your portfolios can optimise your finances while working towards your long-term financial security.

Life Insurance

Term Insurance

Term Insurance is an essential financial instrument for an earning individual. It helps to secure the financial future of one’s family in case of an unfortunate event. Following are the sections of the ITA through which you can save tax once you opt for a term insurance plan:

Benefits under Section 80C^*: Term insurance is a form of life insurance. Under the current tax laws, life insurance premiums are eligible for deduction from taxable income under Section 80C. You can claim deductions up to ₹ 1.5 lakh on premiums paid every year.

Benefits under Section 80D^*: By opting for a critical illness cover with a term plan, you can avail a deduction under Section 80D.

Benefits under Section 10(10D)^*: The claim money is tax-free, subject to conditions under Section 10(10D).

Endowment Plans

Endowment Plans are for your long-term goals like retirement, buying a home, children’s education and more. They are meant to inculcate a disciplined savings habit to help you achieve your long-term goals. They offer the dual benefit of growth of your money and life cover^{^} in case of an unfortunate event.

Similar to a term insurance, endowment plans help to save tax on the premiums paid by claiming deduction under Section 80C and on the amount received at maturity, subject to conditions mentioned under Section 10(10D)^*.

ULIP

ULIPs offer dual benefits of the growth of wealth along with security for the financial future in case of an unfortunate event.

Through the long-term nature of the instrument, you can create funds for your life goals like children’s education, marriage, and buying property.

At the end of the policy term, you receive your investment’s prevailing fund value. But, if an unfortunate event occurs during the policy term, your nominees receive the sum assured.

Similar to term insurance plans and endowment plans, ULIPs help save tax on the premiums paid by claiming deduction under Section 80C* and on the amount received at maturity, subject to conditions mentioned under Section 10(10D)*.

Pension Plans

Pension Plans are designed to provide a steady flow of income after retirement. A person can claim deduction of investment made from taxable income under Section 80CCC upto ₹ 1,50,000/-. It has to be noted that the deduction limit under Section 80CCC^* is clubbed with Sections 80C and 80CCD(1) of the ITA, which essentially caps the overall limit at ₹ 1.5 lakh.

Similar to a term insurance, ULIPs helps to save tax on the premiums paid by claiming deduction under Section 80C and on the amount received at maturity, subject to conditions mentioned under Section 10(10D)^*.

National Pension Scheme (NPS)

Designed to create retirement funds through systematic investments in the capital market, NPS provides double tax benefits. Investments up to ₹ 1.5 lakh are eligible for deductions under Section 80CCD(1)^* of the ITA. Also, a further deduction of ₹ 50,000 applies under Section 80CCD(1B)^* of the ITA.

Public Provident Fund (PPF)

The PPF is another one of the 80C investment options. PPF is a government-sponsored retirement programme aimed at securing your financial well-being after retirement. With a minimum deposit of ₹ 500 and a maximum of ₹ 1.5 lakh per financial year, PPF offers deduction of up to ₹ 1.5 lakh in a financial year subject to conditions prescribed under Section 80C* of The Income Tax Act, 1961. The interest earned within the account is also exempt subject to conditions prescribed under Section 10(11)* of The Income Tax Act, 1961.

Senior Citizen Saving Schemes (SCSS)

SCSS is a savings scheme tailored for senior citizens and offers tax benefits of up to ₹ 1.5 lakh in a financial year under Section 80C* of The Income Tax Act, 1961. SCSS has a minimum deposit of ₹ 1,000 and a maximum deposit of ₹ 30 lakh per financial year, making it a suitable tax-efficient savings avenue for retirees.

Sukanya Samriddhi Yojana (SSY)

SSY is a government-backed savings scheme designed for parents with daughters below the age of ten. It has a minimum deposit of ₹ 250 and a maximum deposit of ₹ 1.5 lakh per financial year. SSY also offers deduction of up to ₹ 1.5 lakh subject to conditions prescribed under Section 80C* of The Income Tax Act, 1961.

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