What are tax-free investments?

As extensions for the ITR deadline get exhausted, investors search for ways to save taxes at the last minute. But smart tax planning isn't just about knee-jerk decisions - it's about choosing long-term investments that keep taxes minimal. The good news? Some investment options not only help you reduce your taxable income but also allow you to grow your money effectively. In this article, we break down four popular tax-saving investments that serve this purpose. But one of these is a winner, and let's find out which one it is. NPS Tier-1: The retirement solution The National Pension System (NPS) Tier 1 is a government-backed retirement savings scheme designed to help you build a retirement corpus. While it has a lengthy lock-in period (till age 60), it offers a series of tax benefits for a long-term investor: Tax deductions under Section 80CCD(1): You can invest up to Rs 1.5 lakh annually and claim a deduction on your taxable income. Additional benefits under Section 80CCD(2): Employer contribution of up to 10 per cent of your salary (basic + dearness allowance) to the NPS Tier-1 account is not considered taxable income. Extra deduction under Section 80CCD(1B): An additional Rs 50,000 can be claimed, making NPS one of the most tax-efficient options available. This is over and above the Section 80C limit. Once your investment amount reaches maturity, 60 per cent of it will be tax-free. And thanks to a recent update to the NPS, you can opt for an SLW (Systematic Lumpsum Withdrawal). This allows you to withdraw from your account while the rest of your corpus continues to grow. However, one downside is that the rest of the 40 per cent has to go into buying an annuity. And withdrawals made from that sum of money are taxable at the slab rate. Suggested read: An overview of the National Pension System PPF: A smart fixed-income solution The Public Provident Fund (PPF) is one of the most popular tax-free investments in India, known for its safety and attractive returns. It's a government-backed savings scheme that's ideal for risk-averse investors. Let's walk you through the basic features of this investment option: Tax deductions under Section 80C: You can invest up to Rs 1.5 lakh annually and claim a

This article was originally published on January 30, 2025.