With interest rates rising, yields after tax have now gone higher. The post tax returns on investments have gained in the last few months. There is now a need to look at better investments, that offer tax free interest income in India. There are many investments that offer this kind of returns, but, in some cases, you may also get sec 80C benefits.
Here are a few instruments that offer tax free income in India.
Sukanya Samriddhi Account
This scheme is a must if you have a girl child at home. There are a number of reasons why this is among the best tax free investments in India.
The first is that the interest rate at 8.5 per cent beats most fixed yielding instruments in the country. The second is that it offers tax free interest income and the third is that amounts of upto Rs 1.5 lakhs qualifies for tax exemption under Sec 80C of the Income tax Act. This makes it one of the best investments in the country.
Along with PPF, these are perhaps the two best schemes that offer a combination of tax free income and Sec 80C benefits.
SBI Life - Saral Maha Anand
The returns and the amounts earned on the SBI Life - Saral Maha Anand is tax free. Being a Unit Linked Insurance Plan, you get Sec 80C tax benefit.
So, in short the returns are tax free, your life is insured and you get benefits of Sec 80C, whereby if you invest an amount of Rs 1.5 lakhs, you get a tax exemption. This is one of the best tax free investments in the country and you should apply for the same.
However, ULIPs tend to give you lower returns, because of the initially high expenses, including administration costs. However, they do offer an insurance amount up to 10 times the amount paid by way of premium every year.
There are a number of reasons you should invest in the PPF apart from the tax free income. The first and the foremost is that there is no other investment that is backed by the government that gives you more than the PPF at the moment with a sec 80C benefit, apart from Sukanya Samridhi.
An interest rate of 8 per cent per annum is better than what most banks are offering.
So, these two along with ULIP plans should be the best tax free income that one can get. If you are a long term investor who is looking to save money for a child's marriage, education or to boost retirement amounts this should be a good bet.
REC Tax Free Bonds
REC Tax Free Bonds offer you an interest rate of 8.37 per cent. The bonds are traded on the NSE and the interest earned is tax free. If you buy the bonds now you get tax free interest payment on Dec 1.
This is tax free in the hands of investors. No, how much these bonds yield would depend on the rate which you buy them from the market. For example, the bonds have a face value of Rs 1,000. So, if you buy them for more the yield would fall below the contracted coupon rate of 8.37 per cent.
Volumes on tax free bonds are low, so you may not get a huge quantity, if you want to buy.
NHAI 2 Tax Free Bonds
You can buy the tax free bonds listed on the BSE. The NHAI 2 series tax free bonds come at a price of Rs 1100.
The tax free bonds offer an interest rate of 8.3 per cent. The bonds can be purchased from NSE and you will receive tax free interest every year.
It is extremely important to note that the price of the bonds are way above the face value of Rs 1,000. What this means is that your yields would drop to around 6 per cent on a post tax basis.
Again, we wish to emphasize, higher the price, lower would be the yields. However, income is exempt from tax.
ICICI Prudential Wealth Builder II
Under this plan you get tax free income and also tax benefits under Sec 80C. You also get insurance up to 10 times the premium paid.
So, if you pay a premium of Rs 50,000, you get an insurance of up to Rs 5 lakhs. In short, the returns are tax free, there are sec 80C benefits and insurance component. However, the returns are low because of the several charges including the administration charges that are involved with the ULIP product.
HDFC SL ProGrowth Flexi
Under this plan, you get insurance cover, as well as the amount is tax exempted. The income earned by way of returns is tax free.
You can get returns from investing in bluechip funds, balanced funds or opportunities fund. A good fund for tax free returns.
REC N5 series Tax Free Bonds
Rural Electrification's Tax Free Bond (N5 series) is also not a bad bet for tax free income.
These bonds are listed on the NSE and offer an 8.01 per cent coupon rate. Interest is paid every year in the month of Dec, which allows for tax free income.
Now, your returns would really depend on the price you pay for these bonds. At the moment, they are traded at Rs 1080 on the NSE. If you can get them lower, your yields would improve dramatically.
Remember, you get an interest rate payment in the month of December 2018, which improves the yield even further.