Have you been looking for a few common investments in India to park your money in? Fret not, with this blog you will get a clear understanding of a few significantly common investments in India and how these common investments in India are taxed. All of us are always keen on making investments that give us sky-high returns and come with tax benefits, but that are only natural. Different investments in India are taxed differently. Most of the investments in India are not exempted from tax. While investing in some of them would fetch you a tax exemption under Section 80 C of Income Tax Act, some would have minimal tax attached to them. Hence, it is crucial to have a clear understanding of different investment options and how, the tax is levied on to them.
Here is a list of 8 common investments in India and tax details associated with each of them for your ready reference.
1. Fixed deposit
A fixed deposit in the bank or post office is considered to be a very safe investment option that fetches good returns. The desired amount is kept fixed for a particular period. Interest as per the tenure of account is calculated, and it varies according to the term of the fixed deposit. Interest can be opted as per the desire of the investor. The interest income earned from the fixed deposit is entirely taxable. In case of a fixed deposit, the bank deducts tax from source (TDS) at the rate of 10%. If you fall under the non-taxable income slab, you will have to submit a Form 15G with your income tax return. To get a deduction of up to an amount of 1.5 lakh under the section 80C of the Income Tax Act, you must invest in a tax saver fixed deposit with a minimum lock-in period of 5 years.
2. Public provident fund
Most of the Indian citizens prefer to invest in Public Provident Fund (PPF). PPF has a good interest rate. It has a fixed tenure of 15 years. It can be extended each time for a block period of 5 years thereafter. The maximum deposit that you can make in this account each year is 1.5 lakhs. The contribution of 1.5 lakhs made in the PPF account every year is tax-free under the Section 80 C of the Income Tax Act. This investment falls under the EEE (Exempt income, Exempt Maturity, Exempt Return) category. This means the deposits, returns, and the withdrawals are exempt from taxation. The triple benefit of tax deduction on the deposits, tax-free interests, and no wealth tax association makes this one of the most popular and common investments in India.
3. RBI taxable bonds
RBI taxable bonds are one of the most common investments in India. These bonds have a tenure of 7 years. You will need a Demat Account to issue an RBI taxable bonds. The deposit is credited to the Bond Ledger Account and certificate is provided to the investor as a proof. The interest earned is added on to the total income of the bondholder. It will be then taxed as per the applicable tax rate. However, the bond is free from wealth-tax.
4. Senior Citizens Savings Scheme (SCSS)
A Senior Citizen’s Savings Scheme is the most suitable for retired individuals who are looking for stable monthly income. The interest rate is high, and the maximum amount that can be invested in this scheme is 15 lakhs. An SCSS qualifies for a deduction under the section 80C of Income Tax Act. The interest earned is not tax-free. However, in case of a premature withdrawal of an SCSS, it does not qualify for any tax benefit under Section 80C. The interest amount earned is entirely taxable. If the interest amount earned exceeds Rs 10,000, then TDS is deducted at the source from wherever the income is generated.
5. National Savings Certificate
The National Savings Certificate is one of the common investments in India. The interest earned is compounded on an annual basis. But it is paid only at maturity. The tenure of an NSC is 5 years however there is no maximum limit to an NSC’s An NSC qualifies for a deduction under section 80C of Income Tax Act. The interest earned in this scheme is first added to the investor’s total income. Then it is claimed as a deduction under the section mentioned above.
6. Sukanya Samriddhi Account
One of the most common investments in India among parents of a girl child is Sukanya Samriddi Account (SSA). In this scheme, there is no limit on the number of deposits that can be made in a financial year but, the maximum amount that can be invested in a year is limited to Rs 1.5 lakh. The maturity of the account is when the child completes 21 years of age. Partial withdrawal is an option provided in this scheme. The annual deposit that is limited to Rs 1.5 lakh qualifies for tax deduction under the section 80 C of the Income Tax Act.
7. Recurring deposit (RD)
A Recurring Deposit is the kind of investment that can be made by practically anyone in India. A fixed amount of money has to be deposited every month into the RD account for a fixed period as per the depositor’s discretion. Tax deducted at source (TDS) is levied at the rate of 10% on interest earned from Recurring Deposits. A TDS is not deducted if the interest earned on the RD does not exceed Rs.10, 000. If the income of the assessee falls under the non-taxable slab, he or she has to submit a Form 15 G along with their income tax return.
8. Unit Linked Insurance Plans (ULIP)
The ULIP is one of the most common investments in India. They have a mandatory lock-in period of 5 years. The debt and equity market is targeted for investment. The investment amount qualifies for a deduction under section 80C, though, any gains are entirely taxable.
Finding the right investment option and knowing how it is taxed is essential before investing your hard earned money.
