Q. I have lost my parents who were government servants; I received a lump sum amount as their pension emoluments where the interest per annum may exceed ₹2 lakh. I am unemployed. Should I pay tax on the FDs and will this interest amount be added up in my income certificate for various purposes?
John Abraham
A. The interest accrued on the fixed deposits (FD) invested by you from the receipts of your parent’s pension emoluments will be included in your taxable income as the FDs are invested in your name. If you do not have any other source of income, the interest accrued from these FDs are within the basic exemption limits and thereby no incidence of tax on the same. Further, you may submit Form 15G as your income is within the taxable limits to your banker so that TDS is not deducted on the interest payable to you as the bankers are required to deduct TDS on interest if the interest payable in a year exceeds ₹40,000 to a non-senior citizen.
Q. I retired from a public sector bank in August 2020. At the time of my retirement, I had encashed eight months’ privilege leave equivalent to nearly ₹10 lakh and TDS was exempted up to ₹3 lakh only. It is said that TDS is exempted for the entire leave encashment amount for bank employees. If so, can I claim a refund for the tax paid amount in excess of ₹3 lakh?
Ganji Narsaiah
A. Employees of Public Sector Undertakings cannot be treated on par with Government Employees for the purposes of Section 10(10AA) of the Income Tax Act, 1961. In your case, the leave salary that was paid to you at the time of your retirement is not be completely exempt. The exemption that is available to you at the time of receipt of leave salary at your retirement will be the least of ₹3,00,000, leave salary actually received, 10 months’ salary (basic plus DA), cash equivalent of leave to the credit of the employee at the time of retirement. The cash equivalent of leave to the credit of the employee at the time of retirement is calculated in the following manner ((AxB)-C)xD where,
A - Number of completed years of service
B - Number of leave days credited each year (maximum 30 per year)
C - Number of days of leave taken or encashed during the period of employment
D - Average salary of the past 10 months
You may enquire with the HR department with respect to the break-up of the leave encashment and the corresponding TDS.
(The adviser is partner, GSS Associates, Chartered Accountants, Chennai)
Q. I have started working in a company at a mid-managerial level. Every month a portion of my salary is left unused in my bank. This is after my investments in RD, SIP and LIC Jeevan Anand. I was contemplating putting this money in FDs, say ₹25-35,000 in different FDs whenever I have a significant portion of my salary unused for the month. Do you think investing in multiple FDs is a smart option? I know that the interest rates for FDs are very low but it’s some amount of money that’s safely secured for future usage. Please advise.
Arjun Ram
Bhavana Acharya answers: There is nothing wrong in investing in multiple fixed deposits. But in your case, it will get cumbersome to track a large and varying set of FDs and maturities, if you are going to open a new one almost every month. If the surplus of ₹25,000 is only rare and you typically have far smaller amounts left each month, bunch this up for a few months and then open an FD. But also note that FDs are tax-inefficient as interest income is taxed at your slab rate.
Investing very heavily in FDs during your earning years can result in lower returns. If you are certain that you will be left with such surplus every month, do the following: first, set up an emergency portfolio (at least six months’ expenses, including any EMIs) if you do not have one already. Use a combination of bank FD and liquid funds for this portfolio.
After this is done, increase your monthly SIP investments. If you’re steadily sitting on such high surpluses each month, increasing SIPs will go a long way in wealth building. Adjust the amounts you are investing in each fund based on this higher amount.
If you have not done so already, work out a suitable allocation between equity and debt funds based on your risk and time frame. If your SIP has only been in equity funds so far, start investing in low-risk debt funds – this will also meet your intention to invest in low-risk options. Debt funds are more tax efficient than FDs as you will be taxed only at the time of redemption, along with indexation benefits.
Q. I have a home loan of ₹15 lakh with a tenure of 20 years. Should I close it by borrowing interest-free money or continue with it for tax saving purpose? Also, what are the avenues of tax saving if I close this loan?
Abhishek Ballaney
A. It’s hard to understand where you may be able to borrow interest-free money. Even assuming that you do, it’s not a simple answer. It requires calculations on how much tax you are saving, how much your EMI reduces, how much you may theoretically increase your savings and working out which option leaves you with the best return.
You can consider availing the services of an investment adviser as a one-time exercise in order to do so correctly. If you close the loan, you have the normal deductions available under Section 80 C of the I-T Act, an additional ₹50,000 a year for investments in NPS, besides other expense-based deductions such as medical insurance.
However, depending on your loan, these may not completely compensate for tax-saving on home loan payments. The option of moving to the new tax regime is also there. Here again, you will need to work out whether it is beneficial for you.
(The adviser is co-founder, Primeinvestor.in)
