Tax saving fixed deposits is a special category of fixed deposit that allows investors to claim deduction under Section 80C of the Income Tax Act. With the Tax year ending on 28 February 2023, now is the time to invest and maximise your benefits. The most obvious perk of a Tax-free invest is that the earnings from such invest are not taxable. However, when you choose a financial product for invest, Tax should not be the only consideration. If you choose to invest in debt products such as PPF, Tax-saving fixed deposits or other Tax-free invest, you should also consider the rate of return, liquidity, time horizon and other factors.
The rate at which your own dividends and capital gains from these invest are taxed does not matter because they're sheltered from taxation. Tax-free invest are an ideal way to shelter your money from taxation, as they not only provide Tax-free growth but also Tax-free withdrawals. Here are some of the best Tax-free invest that you should consider:
Municipal Bonds: Municipal Bonds are debt securities issued by state and local governments. These Bonds offer investors the opportunity to earn interest income that is not subject to federal taxation and in some cases, state taxation as well.
Tax-Exempt Mutual Funds: Tax-exempt Mutual Funds are funds which invest in municipal Bonds and other securities that are exempt from federal income taxes. These funds can be a great way to diversify your Tax-free invest.
Tax-Exempt Exchange-Traded Funds: Exchange-traded funds (ETFs) are pooled invest that are traded on a stock exchange. Tax-exempt ETFs are composed of municipal Bonds and other securities that are exempt from federal income taxes.
Indexed Universal Life (IUL): Indexed Universal Life (IUL) is a type of permanent life insurance policy that provides Tax-deferred cash accumulation and Tax-free death benefits. The policyholder can choose to invest in a variety of underlying invest, including stock, Bonds, Mutual Funds, and exchange-traded funds.
Tax-Free Savings Accounts: Tax-free Savings accounts are a type of invest account that allows investors to deposit money without paying any taxes on the interest earned. Any withdrawals from these accounts are also exempt from taxation.
If you actively trade marketable securities in your Tax-free Savings account, you may be surprised to learn that this activity could expose you to taxes. This is because the income realized from the sale of securities is taxable, even if it is held in a Tax-free account.
Tax Diversification: Tax Diversification is an invest strategy that uses Tax-advantaged, fully taxable and Tax-free invest accounts to help lower taxes. Tax Diversification involves spreading your invest across different types of accounts with different Tax consequences, so that you can take advantage of the different Tax benefits available.
People who are doing it just for Tax benefit will not put it into PPF. But with 7.15% Tax-free return, PPF by itself is a good way to invest. It is one of the safest and most reliable Tax-free invest that you can make.