I am a retired army pensioner and have deposited all my savings in bank fixed deposits. But I am losing a considerable amount on account of tax deducted at source (TDS), which the bank deducts on interest payments.
Currently, I want to invest Rs 1 lakh in some debt fund with a horizon of one year. Please suggest some good funds that can yield more income than bank fixed deposits and be tax friendly. Being retired, I cannot go for equity schemes.
- Daya Nand Sharawat
If your interest income from bank fixed deposits falls well under the tax-exempt limit, TDS can be avoided by submitting the details in Form Number 15A to the bank.
In the short-term, debt funds (other than cash funds and short-term floating rate funds) can offer tax advantage over fixed deposits when dividend option is chosen. As your investment horizon is one year, we suggest that you invest in liquid plus funds. The post-tax returns can be higher here. The dividend distribution tax (DDT) applicable on dividends in debt funds (including liquid plus funds) is 14.16 per cent. For cash and ST Floating Rate funds, it is 28.32 per cent. After one year, the capital gains in debt funds are taxed at a lower percentage as compared to bank FD – 10 per cent without indexation and 20 per cent with indexation. Short term capital gains will be taxed as per individual’s tax slab.
Do not shift all the money to debt funds. Keep some in bank fixed deposits where returns and principal investments are assured. Also, even during retirement, a small portion of 10-20 per cent of your portfolio can be kept in equity or balanced funds to fight inflation.
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