Question: I retire in March 2022 with a pension of around Rs. 30,000 per month and lump sum payment of Rs. 75 lakh. Where can I safely invest to meet monthly household expenses and earn tax-free income?
Answer: At present, there are no tax exempt instruments. However, you can buy tax-free bonds issued by various PSUs (Public Sector Undertakings) and Reserve Bank of India (RBI) in the past on the stock exchange. These tax-free bonds are available at a premium to the issue price and are not tax advantageous for people who are not in higher tax brackets, so I would advise you to invest as follows:
On your retirement corpus, you can invest Rs. 15 lakh in Senior Citizen Saving Scheme which offers you a better rate of 7.40% and which is fixed for the duration of five years and is paid quarterly. You can invest additional Rs. 15 lakh to Pradhan Mantri Vaya Vandana Yojana which also gives you 7.40% pa fixed for ten years.
The remainder can be invested in RBI floating rate savings bonds. without any limits and which are just as safe and at the same time give you better returns than other similar products available on the market. The interest on these bonds is reviewed semi-annually. These bonds have a term of 7 years. Currently, these bonds offer an annual interest of 7.15%. Interest on these bonds is payable semi-annually and the rate is compared to interest payable on National Savings Certificates (NSCs).
The interest rate will always be 0.35% higher than the interest on the applicable CNS at the time of the interest rate revision. Under the current circumstances, this is the best possible option considering that you cannot risk your capital. Income from all mentioned investment instruments is taxable and, with the exception of Pradhan Mantri Vay Vandana Yojana, tax will also be withheld at source on interest payable. You can submit form no. 15G for the payment of interest without tax deduction if you meet the eligibility conditions.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant @ gmail and @jainbalwant on Twitter.com.
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