10 Best Investment Options To Save Tax

7. National Savings Certificates and Bank FDs

Many investors have misconceptions about bank fixed deposits. Most often they think that up to Rs.10,000 interest from bank deposits is tax-free, as announced in the budget two years ago but this is not true. The newly introduced Section 80TTA gives a deduction of up to Rs.10,000 on interest earned in the savings bank account, but not on fixed deposits and recurring deposits.

Also, the nomenclature 'tax-saving deposits' means you save tax under Section 80C, not that these deposits are tax-free. The interest earned on deposits is fully taxable at the normal tax rate applicable to you. You have to mention this interest under the head 'Income from other sources' in your income tax return.

8. Life insurance policies

The tax saving is only meant to reduce the cost of insurance. It is not the core objective of the policy. The premium paid for a policy that covers you, your spouse and dependent children is deductible up to Rs.1 lakh under Section 80C. You can buy both cash-back endowment plans as well as term insurance plans. It is seen that often cash-back and endowment insurance policies score low on the flexibility scale. You are supposed to keep paying the premium for the rest of the term once you buy a policy.

However, traditional insurance policies still make a lot of sense for the investor who is more concerned about the tax-free corpus under Section 10(10d) than the deduction under Section 80C.

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