If I have Rs.6 lakh,should I invest it in three different banks or put the whole amount in one bank to avoid tax?
Sai Poora Chandra
According to the Income Tax Act,1967,you cannot avoid tax on interest earned on bank deposits. If the interest is less than R10,000 per year,the bank will not deduct TDS. Otherwise,TDS at 10% or 20% (if PAN card is not submitted) will be deducted. However,if you desire that the bank should not deduct TDS on interest,you can inform it accordingly at the beginning and submit Form 15G/15H. If the total taxable income is below the basic exempted limit,then no tax will be payable.
I quit my job in March to pursue higher education. I have received the PF accumulated of nearly R4 lakh this month as I am no longer employed. This,along with interest (excess of R10,000),will be my income for FY13. As of now,I haven’t taken any educational loan. I have funded it using my savings. Kindly guide me on the tax implications of the income from PF and my expense towards higher education?
If one is employed for less than five years,the person is liable to pay tax on the amount withdrawn from his PF. The total of employers contribution and interest thereon and the interest on the employees contribution shall be taxable. The tuition fee for higher education,excluding any payment towards any development fees or donation,is eligible for deduction under Section 80C of the Income Tax Act. The tuition fee should have been paid to any university,college,school or other educational institution situated within India for the purpose of full-time education.
Since banks are reducing interest rates,what are other risk-free investment options?
The investment avenues will depend on the time horizon. For short-term investments,fixed maturity plans and liquid mutual fund schemes are suitable. For investments more than a year,debt mutual funds,company deposits and non-convertible debentures are suitable. In case of company deposits and NCDs,one should look at the ratings as AAA or AA rated instruments carry lower credit risk.
Can I take a loan against my deposit in Public Provident Fund (PPF)? What will be the interest rate charged?
You can take loan on a repayment basis against this as security from the same bank branch in which your PPF account is maintained. From the seventh year onwards,you may withdraw from the PPF account directly. The first loan from the PPF account can be taken at any time from the third year but before the seventh year. The maximum loan will up to 25% of the amount at credit one year before the preceding year. The rate of interest charged on the loan will be 2% more than the PPF interest rate,i.e.,10.60% at present.
Do I have to pay tax on FMPs or NCDs on the maturity amount?
Yes,you will have to pay tax on the interest earned from fixed maturity plans or non-convertible debentures on maturity. If you hold the security for more than a year,it will be treated as a long-term capital asset. For long-term capital gain,you will have to pay tax of 10%,or 20% with indexation.
The writer is chief financial planner with Max Secure Financial Planners
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