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Differences between Tax Saving Bonds and Tax Free Bonds
During the onset of tax season, a lot of us are busy scrambling to collect details of all our investments which we can claim tax benefits from. From repayment of education loans to life insurance, there are a lot of essential investments that are exempt from tax. For those looking to stave off the tax demons even further, there are financial investments which are of a less critical nature. Of these, Tax Savings Bonds and Tax Free Bonds are two very popular financial instruments.
Here, let’s take a look at the two and see how they can help you save tax on salary.
Tax Savings Bonds
Tax Savings Bonds are mid to long-term investment tools, with a minimum investment period of 5 years. Investment in these bonds will result in taxes being levied, but the individual can enjoy tax benefits under section 80 CCF of the Indian constitution.
Those investing in these bonds can avail tax deductions amounting up to Rs 20,000 on the investment amount. However, the interest earned through the bond is taxable.
Tax Free Bonds
Tax Free Bonds are long-term investment tools with tenure that can last up to 20 years. They can also be listed on the stock market so as to provide investors with an escape route.
As the name suggests, the interest earned from these bonds is tax free. However, one is not entitled to any tax benefits on the amount invested in the bond.
So what’s the difference?
People can sometimes get confused between Tax Savings Bonds and Tax Free Bonds. So we hope that these three pointers can help dispel all those doubts.
|
Tax Savings Bond |
Tax Free Bond |
| Minimum lock-in period |
5 years |
No minimum lock-in period |
| Tax benefits on principal |
You enjoy benefits on the initial investment under section 80 CCF |
This is an investment that will not yield tax benefits on the principal amount |
| Tax benefits on interest |
You will have to pay tax for the subsequent interest earned over the years |
The interest accrued from the bond is completely tax-free |
It is also important to remember that the benefits gained from each of these bonds also depend on which of the income tax slabs that you fall under.
Planning your finances properly can help you save a lot in your income tax. However, you need to be prepared. Find out and save more.
