taxation on Fixed deposit investments

POSTED BY Srinivasan Jambunathan ON September 2, 2012 5:07 pm COMMENTS (4)

Dear Forum members,

I plan to invest 5L in Fixed deposits for a period of 5 years. I have a few options in doing this but primarily I want to take an option that will have the least overall tax liability.

Option 1: Invest it in my daughter’s name (aged 8 yrs) with my wife as Joint / guardian.

Option 2: Invest it in my wife’s name (Housewife with no tax liability currently)

Option 3: Invest it as a Joint with my wife, my wife’s name as the First Holder and Mine as Second.

I have read elsewhere that – “If you invest in a child’s name, the income earned is clubbed with that of the parent who earns more and is taxed at the applicable rate.” Is this rule correct?In that case, Option 1 – the interest income will be added to my income. 

Request your inputs on the better option to enable to take an informed decision.

Thanks,

Srinivasan

4 replies on this article “taxation on Fixed deposit investments”

  1. srinivasan j says:
    September 3, 2012 at 11:48 am

    Dear Ashal,

    I am in the 30% tax slab.

    1. Could you please clarify your statement on the issue of clubbing and suggest some good debt funds for this period.

    2. Please also do suggest MFs, that are safer than the debt funds and returns are comparable to FD or slightly above FD.

    Thanks,
    Srinivasan

    Reply
    1. Ashal Jauhari says:
      September 3, 2012 at 1:51 pm

      Dear Srinivasan, in case of pure debt funds, my choice ‘ll be SBI Dynamic Bond or Birla Dynamic Bond. In case you are ready to ride the little bit of Eq. I w’d prefer HDFC MIP Long Term Plan or Reliance MIP.

      Interestingly as you are in 30% tax slab, no need to invest in either minor d’ter’s or wife’s name. Please invest in your own name. The LTCG ‘ll be taxed at a flat rate of 10.3% with out indexation or 20.6% with indexation.

      Thanks

      Ashal

      Reply
  2. srinivasan j says:
    September 2, 2012 at 7:00 pm

    I should have looked at this article prior to posting this question:

    https://www.jagoinvestor.com/2009/09/what-are-income-clubbing-provisions-and.html

    If anybody have a better suggestion please feel free to comment.

    Thanks

    Reply
    1. Ashal Jauhari says:
      September 3, 2012 at 1:19 am

      Dear Srinivasan, May I know your Tax slab? If your time frame is 5Y, why are you thinking only for Fds & not other instruments like MFs (either debt or Hybrid, if you do not want to take higher Eq. exposure)?
      Interestingly the debt fund can handle this issue of clubbing very well due to lower applicable tax.

      Thanks

      Ashal

      Reply

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