I got the following question from a reader the other day, and I’m seeing if I can crowd source the answer and verify some things that I think are applicable in this case.
Here is the question:
I am an avid reader of your blog. I am working in a leading software firm.
I have a question. I will be superannuating next year after completing 55 years as per our company policy. I should have a retirement corpus of around 50 lacs which includes my savings in LIC plus the retirement benefits like PF, superannuation and gratuity. I do not have any loan liability. Assuming that I keep this money in bank FDs, thus earning approx. Rs.4.5 lacs as interest at the rate of 9% p.a. I request your answer to the following questions:
1. What will be my tax liability with the above income?
2. Since there will be no salary income, should I, as a tax payer, intimate the Tax Authorities about my retirement or will my employer do this? (my case is not a resignation but a superannuation). If so, pl. suggest me the website where any particular format is avaiable.
3. My income will be within Rs.5 lacs p.a., – should I file a tax return?
4. Is keeping the entire funds in bank FDs safe?
I would appreciate your response to do my financial planning.
First of all, I’m not sure what the tax treatment is for the lump-sum that you get on retirement. I’d imagine it depends on the source, but even then I don’t know how to break it up into different categories.
Now, to the responses to the questions.
1. At 4.5 lakhs, you will fall under the Rs. 2 to 5 lakhs tax bracket and you will be liable to pay 10% tax on the income above 2 lakhs. There are tax deductions you can get to reduce your tax liability but if you don’t do anything then you will have to pay taxes.
2. Even though you don’t have a salary income, you have income from other sources, and you will have to file tax returns.
3. Yes, because of the reasons stated above.
4. Well, this is a bit harder to answer, I think in general the big banks are safe and as long as you spread your fixed deposits in a few different banks you should be alright. However, if there were a problem with any banks, I think the general public will be the last to know and I certainly don’t have any insights on any problem banks.
What do you think about this situation? Anything you want to add or correct?