PF withdrawal is taxable if employed for less than 5 yrs

If I have Rs.6 lakh, should I invest it in three different banks or put the whole amount in one bank to avoid tax?

Sai Poora Chandra

According to the Income Tax Act, 1967, you cannot avoid tax on interest earned on bank deposits. If the interest is less than R10,000 per year, the bank will not deduct TDS. Otherwise, TDS at 10% or 20% (if PAN card is not submitted) will be deducted. However, if you desire that the bank should not deduct TDS on interest, you can inform it accordingly at the beginning and submit Form 15G/15H. If the total taxable income is below the basic exempted limit, then no tax will be payable.

I quit my job in March to pursue higher education. I have received the PF accumulated of nearly R4 lakh this month as I am no longer employed. This, along with interest (excess of R10,000), will be my income for FY13. As of now, I haven't taken any educational loan. I have funded it using my savings. Kindly guide me on the tax implications of the income from PF and my expense towards higher education?

Kaushik Kochhar

If one is employed for less than five years, the person is liable to pay tax on the amount withdrawn from his PF. The total of employer's contribution and interest thereon and the interest on the employee's contribution shall be taxable. The tuition fee for higher education, excluding any payment towards any development fees or donation, is eligible for deduction under Section 80C of the Income Tax Act. The tuition fee should have been paid to any university, college, school or other educational institution situated within India for the purpose of full-time education.

Since banks are reducing interest rates, what are other risk-free investment options?

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