Large number of retired officers keep asking us about avenues for getting tax-efficient monthly income. Having considered almost all available avenues like real-estate (residential or commercial) rent, POMIS (Post Office Monthly Income Scheme), SCSS (Senior Citizens Savings Scheme), monthly interest from bank FDs etc, we find that the Systematic Withdrawal Plans (SWP) of Debt Mutual Funds are the best in terms of tax-efficiency, flexibility of withdrawal, flexibility of investment, and better returns on investment.
If carefully planned, one could pay as low a tax as 4-5% on the monthly income received even if you are in 30% tax bracket! And this ‘additional pension’ amount can be set-up as per your need at a frequency as desired. Further, this amount can be increased, decreased, stopped, or restarted any time one wants. Returns from Debt MFs are likely to be higher than any of the other avenues while being invested as safely as bank FDs and Govt Bonds.July 26th, 2018
For more than one house, any one house can be chosen as self-occupied while total of all rents will be treated as income for the year. If a non-self-occupied house is not rented, a notional rent, based on the rent that property is expected to normally fetch, is taxed. Interest portion of EMIs of all home loans is eligible for tax benefits under IT 24(b). If income under the head ‘house property’ is negative (loss), such loss can be offset against other taxable income, subject to a maximum of Rs 2 lakhs per year. Balance can be carried forward for maximum next 8 assessment years for adjustment. Under Section 80C, Principal portion of all housing loans is eligible for tax deduction upto Rs 1.5 lakhs.
These deductions are available only if the house is under possession. Repayments of loan taken from friends and relatives, are not eligible for this deduction.
SSY is a scheme only for a girl child from birth till 10 years of age. A minimum of Rs 1000 and maximum of Rs 1,50,000 is the limit in each financial year. Launched in 2014 at 9.10% interest rate, it now offers 8.1%. Deposits in SSY are exempted under Section 80C while the interest and withdrawal after maturity are tax exempt. Tenure of the scheme is 21 years but withdrawal is allowed for higher education for meeting actual admission fee requirements if the child has attained 18 years or completed 10th class. Deposits can be made for a maximum of 15 years after opening the account. After this period, account will earn only the interest. Normal closure is allowed after the girl’s age of 18 years and marriage.
But remember, the interest rate in SSY is slowly coming down over the years.
July 26th, 2018