Investments without Tax Deduction At Source

Investments without Tax Deduction At Source

Once you have retired or taken a VRS, you normally get a lumpsum money in the form of compensation, gratuity, provident fund (PF) etc.

As long as you were working the interest earned on PF & gratuity was exempt from tax hence there was no worrying on how to save tax or there was no TDS deduction.

On retirement every retiree faces a dilemma on where to invest money for maximum returns with minimum risks. Further for most private sector employees there is no or very low pension and one is forced to live out of the PF, Gratuity, personal savings.

In my earlier article I had introduced “Reverse Mortgage”, the same is a secure source of good income as most of us own a home during our lifetime.

At this phase of life investments in mutual funds, equity shares are very risky and not advisable.

One of the first options opted by the senior citizen is to keep Bank Deposits, Company Deposits, debentures since senior citizens get an extra return. However the income earned on these instruments are subject Tax Deducted at Source (TDS). This deductions range between 10 to 30% on the income earned.

TDS is deducted even if one is not liable to pay income tax or has already paid the necessary tax dues. One has to file an income tax return to get a refund of tax. It takes atleast six to eight months for getting the refund from Income Tax Department. This is an administrative hassle for a lot of senior citizens as they have low tax liabilities and generally have to claim TDS refund from Income Tax department.

Here are some instruments which have no TDS deductions, but please not that these are not tax free instruments. Income is subject to Income Tax but no TDS is deducted.

National Saving Certificate (NSC):
There is a very popular investment. Also, investments in NSC get tax benefits under Section 80C. NSC is a six-year instrument where the investor is able to earn a cumulative return. The interest is compounded half-yearly and the rate works out to 8.16 per cent. The investor gets the entire sum in his hands. The income earned is taxable. And the investor has to show each years accumulated income as income from other sources.

Post Office Deposits:
This includes post office time deposits as well as post office recurring deposits. In a normal bank, where TDS is imposed on the time deposits, there is no such provision present for the time deposits at a Post office.Even the monthly income scheme from the post office will not have a TDS. However please note that the income is subject to income tax in the hands of the recipient.

Recurring Deposit with banks:
In this type of deposit scheme an investor puts a specified sum of money for a number of months and years. The rate of return is fixed on such deposits. At the end of the term, the bank pays back the entire accumulated sum. Unlike a normal fixed deposit made with the same bank where there would be the TDS when income exceeds a specific limit (Rs 10,000), no amount is deducted from the interest earned here. The interest earned on recurring deposits however remains taxable.

Certain Specific bonds:
Income earned on bonds issued after June 1, 2005 by any infrastructure company or capital fund or a public sector company is exempt from TDS deduction.
In case you have any further questions, please write to me at mrinalmghosh@gmail.com.









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