My father is a retired government officer (retired on October 2013). He received a provident fund settlement of ₹25 lakh. He is planning to invest this amount in a bank FD. Will the interest earned be taxable? If so, at what percentage? He does not have any other income.
- Suhel Bandar
Given your father's status, his interest earned from bank FDs would attract tax at the rate of 10 percent if total interest received exceeds Rs 10,000 in a financial year. Given the sum being invested, your father will definitely have to bear tax if he invests the entire sum in a bank FD. Your father is probably looking for a regular income from his PF investments. There are better ways to achieve this goal. Your father does not require this money at once. Therefore, retain a sum equal to 3-6 times his monthly requirement in his savings account. Then, invest 2 to 3 year's requirement in a bank FD. This way, tax outgo may decline significantly. Invest the remaining funds into highly rated short term debt mutual funds. You need to be extra careful that the sums specified in the bank FD or savings account do not fall below the prescribed minimum limit at any time. Keep switching from mutual funds to bank FD to make up the balance.