Are there any tax implications of investing in risk-free instruments?
Curious about risk-free investment
Yes, there are tax implications of investing in riskfree instruments in India.
The interest earned on some riskfree instruments, such as Fixed Deposits (FDs) and Public Provident Fund (PPF), is taxable. The interest earned on FDs is added to the investor's income and taxed at the applicable tax rate. However, some taxsaving FDs have a lockin period of five years, and the interest earned on them is taxfree.
The interest earned on PPF is taxfree, but the investment has a lockin period of 15 years. Additionally, investments made in the National Savings Certificate (NSC) and Senior Citizen Saving Scheme (SCSS) qualify for a tax deduction under Section 80C of the Income Tax Act.
It is important to note that tax implications can vary depending on the specific instrument and the investor's tax bracket. Therefore, it is advisable to consult a tax expert before making any investment decision.