I am a 62-year-old salaried woman and I have adequate passive income for sustenance. I work in the public sector in Punjab and have started saving almost 80% of my in-hand salary into a three-year recurring deposit (RD) at 9.8% interest. I earn Rs.12 lakh a year. I have deposited Rs.1 lakh in Public Provident Fund (PPF) this year. How and where should I invest to prevent tax deductions and increase my per month take-home which in turn will be diverted into increasing my monthly passive income?
As a salaried employee, your income tax will be deducted at source. And at your income level, the marginal rate of tax is also high. Hence your net take-home is reduced accordingly.
The most commonly used deduction is section 80C of the Income-tax Act which allows you to deduct up to Rs.1 lakh for your gross total income to arrive at the net income. This deduction is available for investments made in specified qualifying investments—PPF, life insurance premiums and so on. However, you have already exhausted this deduction. Another deduction available under section 80D provides benefit in respect of payment made for medical insurance premium subject to a ceiling of Rs.15,000 and also includes payment on account of preventive health check-up subject to a cap of Rs.5,000 but within the overall ceiling mentioned above. In case a policy is taken on the life of senior citizen (which as per the Income-tax is now revised to 60 years and hence you are eligible) the additional deduction of Rs.5,000 is available.
In case you are not having any medical insurance, it is recommended you should have a medical insurance, even if you find the same expensive.
Other than these deductions, you are eligible to claim certain allowances within your salary which your employer needs to factor in. For example, in case you are staying on rent, house rent allowance under section 10(13A) can be claimed which will help in increasing your take-home salary. And in case of any housing loan taken on self-occupied property, you will be eligible to claim the interest on borrowed capital. The maximum ceiling of claiming interest on borrowed capital is Rs.1.5 lakh.
Overall the deductions available are limited and you cannot increase your take-home beyond a limit. As the options are limited , you need to check how your investments can become more effective.
At present your savings in RD is not the best option. The gross return is good but considering your marginal rate of tax, the net return in hand is 6.8% which then does not look that effective.
As you are prima facie risk averse, consider debt mutual funds and here short- to medium-term funds as well as funds which are dynamically managed are good options.
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