These 5 investments offer tax free interest income in India
New Delhi: Tax planning is necessary because it not only does it helps you minimise your tax burden, it also allows you to optimise your investment returns and manage liquidity. There are several tax-saving products available in the market. However, not every instrument is suitable for everyone. While the main goal to invest in such instruments is to save tax, taxpayers must remember that such options shall be chosen also based on the financial goals, age, risk appetite etc.A tax-saving product suitable for a young assessee may not suit a retiree because of age, risk appetite and financial goals difference. While selecting the appropriate tax-saving products, assessees often face the dilemma of which product to choose and why.Here are five investments that offer tax-free returns:1. Public Provident Fund: The interest earned on the Public Provident Fund (PPF) is completely free from tax. Apart from this, the PPF also qualifies for tax benefits under Section 80C of the Income Tax Act. The interest on the PPF is much better than what FD's of almost all large nationalized banks in the country offer. The PPF currently offers an interest rate of 7.10 per cent per annum. However, before putting money in PPF remember that PPF is a long-term investment instrument and that it has a lock-in period of 15 years. For an individual looking to build a corpus at a later stage, it might a good tax-saving investment option.2. Voluntary Provident Fund: VPF is a voluntary contribution that is over and above the statutory EPF contribution. Only salaried employees who are members of EPFO can invest in VPF. Regardless of how much the employee contributes to VPF, the employer will not contribute more than 12% of the basic salary they receive. The current VPF interest rate is 8.50%. Contributions to VPF are eligible for tax deductions under Section 80C. Like EPF, VPF also enjoys EEE (exempt-exempt-exempt) status, which means the amount invested up to Rs 2.5 lakh in a year, interest earned, and maturity proceeds are exempt from tax.3. Tax-Free Bonds: Some government-owned institutions are allowed to raise money through tax-free bonds. Some of these institutions include HUDCO, REC, PFC, Indian Railways Finance Corporation etc. The interest earned from these bonds is completely tax-free in India. Presently, these bonds are listed on the stock exchanges. For instance, the 8.65% IRFC tax-free Bond offers an interest rate of 8.65. However, you need to buy the same at a price of Rs 1,290, which means the yields drop. Another drawback of these bonds is that liquidity is not too great.4. Unit Linked Insurance Plans (ULIPs): ULIPs are another set of investments, which offer tax-free income to investors. These plans also provide insurance at 10 times the premium paid. ULIPs have become particularly common in recent years. Investors will benefit from tax deductions of up to Rs 1.5 lakh under the 80C of income tax provisions. However the returns are not too great as a lot of money is allocated to administrative, mortality charges etc. There is also a lock-in period of 5 years and in some cases it could be more.5. Interest on savings bank account to the tune of Rs 10,000: The interest on savings bank account does not attract income tax if the interest earned during the course of the year is Rs 10,000 or below across all savings bank accounts of an individual. So, investors can plan accordingly. However, remember that one major drawback of this investment option is that the interest rates are very low. One needs to place the money in either small finance banks where the interest rates on the savings account is 6% for balances above Rs 10 lakhs. However, it still does not offer inflation-beating returns.It is worth adding that if you are looking for a tax-saving product that offers secured returns with a minimum lock-in tenure, you can explore benefits available under National Savings Certificate (NSC). NSCs come with a lock-in requirement of 5 years. You can claim tax benefit under Section 80C of the I-T Act by investing in NSC. The interest rate on NSC is revised by the government every quarter. Currently, the interest rate offered under NSC is 7.9%, whereas in tax-saving FDs the interest rates are in the range of 6.7% to 7% p.a. Investments in NSC are not subject to a TDS.