I am 25 years old and I have just started working. I want to save ₹4,000-8,000 every month in a fixed deposit. Will the amount on maturity be taxed? If yes, could you please suggest investment products that would help me save tax?
Only the interest that you earn from the fixed or recurring deposit (and not the repayment of principal) is taxable in your hands under the head “income from other sources". You can either offer this to tax in the financial year (FY) of accrual (each year when interest keeps accruing) or in the FY of receipt (i.e. maturity) depending on the method of accounting you adopt. However, note that the payer of such interest would be deducting tax at source, on the interest income accrued to you each year, if it exceeds the prescribed limit, and will issue a TDS (tax deducted at source) certificate in Form 16A towards such deduction.
You can also claim a tax deduction from taxable income under Section 80C in the year of investment, if you invest in a fixed term deposit of five years, in scheduled banks.
Other avenues for investing would be best addressed by a financial planner. From a tax deduction perspective, you may consider equity-linked savings schemes, voluntary Employee’s Provident Fund, Public Provident Fund, unit-linked insurance plans, National Pension System, specified mutual funds, specified pension funds, specified bonds etc. Needless to state that the final decision of investment should be taken after considering all aspects (including taxation) as may be advised by a financial planner.
I am a senior citizen. My son transfers around ₹40,000 per month (about ₹5 lakh per year) to my bank account for my living, medical and travel expenses. My son and I file income tax returns every year. Should I indicate the sum received from my son while filing my tax returns under the “exempt income" column or can I ignore it as my son is just supporting his father as a part of his family obligations?
—Name withheld on request
The amount received by you from your son without consideration can be considered as a gift. A gift received by an individual from specified relative (i.e. your son), will not be considered as income and will not give rise to any tax implications in either your or your son’s hands. It would be advisable for any such gift to be documented in a legal document viz. a gift deed and placed in the records. As gift received from a relative is not considered as income, the same is not required to be disclosed under “exempt income – Schedule EI" in the current tax return forms applicable for FY 2018-19.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at firstname.lastname@example.org