Question

Which of the following is not a tax saving investment ?

• A. Home Loan
• B. General Provident Fund
• C. Life Insurance Premium
• D. Fixed deposit

Hint:

Be familiar with the common instruments under Section 80C of the Income Tax Act, such as PPF, EPF, LIC premium, ELSS, and tax-saver FDs. A regular FD is notably absent from this list.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
A tax-saving investment is a financial product that allows an individual to claim deductions from their taxable income under various sections of the Income Tax Act.
Step 2: Detailed Explanation:
(A) Home Loan: Both the principal and interest components of a home loan are eligible for tax deductions under Sections 80C and 24(b) respectively.
(B) General Provident Fund (GPF): Contributions to GPF are eligible for tax deduction under Section 80C.
(C) Life Insurance Premium: Premiums paid for life insurance policies are eligible for tax deduction under Section 80C.
(D) Fixed deposit: A standard Fixed Deposit (FD) does not offer any tax savings. In fact, the interest earned on an FD is fully taxable. While there is a specific product called a "Tax-Saving FD" with a 5-year lock-in period that is eligible under 80C, a general "Fixed deposit" as mentioned in the option is not a tax-saving instrument.
Step 3: Final Answer:
A general Fixed Deposit is not a tax-saving investment; the interest income is taxable.