Popularly known as Zero-Tax Investments, these are investments so made that there is no liability to income tax at all. These investments are broadly mentioned in section 10 of the I.T Act, 1961. First of all, the investment which is completely income tax free is investing in post office savings Account. Similarly, the Public provident Fund Account interest on which is @ 8% , is also completely tax-free. Likewise, the interest income from tax-free Bonds issued by Reserve Bank of India is also completely exempt from income tax. Public sector tax-free Bonds bearing interest of 8.5% or 9% are also completely exempt from income tax. The 8.5% or 9% Tax-free Public sector bonds are for a 10- year’s period. For some time certain public sector bonds of 10%and 10.5%were also being issued. New tax free Bonds by various Municipalities are also being issued. These bonds are completely secured and no income tax is deductible at source. The Reserve Bank of India has now stopped issuing tax-free bonds. Please watch for details in respect of certain tax-free bonds which are issued from time to time. The above are some of the very important tax-free investments.
Particularly in respect of persons with a high income the investing in tax-free bonds is really very lucrative. The dividends received from various companies are also fully exempted from income tax. Entire income on units of UTI as also other Mutual Funds would be completely exempt from income tax. The gains on selling the units of UTI/Mutual Fund would be taxable. However, the long term capital gains in respect of listed securities on which securities transaction tax has been paid are fully exempted from the purview of payment of income tax. Likewise , the long –term capital gains would not be levied in the case of equity oriented mutual funds..