V R Associates, Chartered Accountants

How to restructure salary, investments to cut income tax outgo by Rs 64,557

Hyderabad-based engineer Rutuj Patil earns well, but more than a fifth of his income goes in tax even though he claims most of the deductions available to him. He estimates that he can reduce his tax by almost Rs.65,000 if his company rejigs his pay structure to include some tax-free emoluments and he increases the contribution to the NPS to 10% of his basic salary. Patil should start with the NPS. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free, but Patil has opted for a monthly contribution of only 5% of his basic pay. If he hikes the contribution to the maximum 10%, his tax will reduce by about Rs.22,000. Since he already invests in the NPS, Patil knows how the scheme works and the allocation that suits him. Next, Patil should ask his company to replace the taxable emoluments in his salary with some tax-free perks, such as gadget allowance and reimbursement of newspapers bills. Under Section 17(2), gadgets bought in the name of the company and given to the employee for personal use are taxed at only 10% of their value.

This perk came into focus during the ‘work from home’ phase after the Covidinduced lockdown. If Patil buys items such as computers, white goods and ACs worth Rs.1.2 lakh in a year (Rs.10,000 per month), his annual tax will be reduced by around Rs.37,500. Newspapers and books worth Rs.12,000 (Rs.1,000 per month) will reduce the tax further by around Rs.3,750. More tax can be saved if Patil invests in debt funds instead of fixed deposits. While the interest from deposits is taxed every year, the gains from debt funds are taxed only in the year of withdrawal.

🚀💰 Considering a Secure Investment with Over 8% Interest? Learn about RBI Floating Rate Savings Bonds! 💰🚀

Are you on the lookout for a safe yet rewarding investment opportunity? Look no further than the RBI Floating Rate Savings Bonds (FRSBs) 2020 (Taxable). Currently offering an impressive interest rate of 8.05% per annum, these bonds stand out among other debt investment options. But is now the right time to invest? Let's dive in!

🔍 Understanding Interest Calculation:
The interest rate of RBI Floating Rate Savings Bonds isn't fixed. It's reset every six months, linked to the National Savings Certificate (NSC) interest rate. Currently, with NSC offering 7.7%, RBI Floating Rate Savings Bonds are poised to maintain their 8.05% interest rate from July 1, 2024.

🔑 Key Features to Note:
Issued by the Reserve Bank of India on behalf of the Government of India.
Lock-in period of seven years.
Interest rate reset twice a year, with interests paid semi-annually.
Interest taxable in investors' hands.
No premature withdrawal option, except for senior citizens with penalties.

💡 Is it a Wise Investment?:
Compared to bank fixed deposits, where rates hover around 7-7.85%, RBI Floating Rate Savings Bonds offer slightly higher returns with sovereign guarantees. However, investors should consider the floating interest rate and lack of liquidity options. Despite these, it remains an attractive option for those seeking high-yielding debt instruments.

⚠️ Expert Insights:
"RBI Floating Rate Savings Bonds offer one of the highest yields in India currently, suitable for those with excess liquidity and a long investment horizon," says Raghvendra Nath, MD of Ladderup Wealth Management. However, investors should be cautious of potential fluctuations in interest rates and plan accordingly.

🔒 Final Thoughts:
For investors prioritizing safety and consistent income, RBI Floating Rate Savings Bonds present a compelling option. However, it's crucial to assess your risk tolerance and investment goals before diving in.
In a landscape where interest rates seem to have peaked, seizing this opportunity could prove beneficial in the long run. Explore the potential of RBI Floating Rate Savings Bonds and make an informed investment decision today!

Disclaimer: The information provided in this post is derived from Economic Times, dated April 10th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

Banks must play bigger role in rupee derivatives: RBI

Mumbai: Indian lenders must play a larger role in global derivatives and work to ensure that smaller retail players do not pay more for access to foreign exchange products, central bank governor Shaktikanta Das said Wednesday, underscoring the need for local banks to reflect the country's rising economic status and emerge as market makers. "Participation of domestic banks in derivative markets remains limited with only a small set of active market-makers... Domestic banks are dealing with market-makers in global markets rather than with end clients and are yet to emerge as market makers of note globally," Das said at a conference of fixed income market participants in Barcelona. While ensuring prudence and due diligence, the focus should be on widening participation of Indian players in markets for rupee derivatives, both local and offshore, Das said, pointing to the crucial hedging function that derivatives markets provide to the economy.

Observing that liquidity in over the counter (OTC) derivatives markets, especially interest rate derivatives, is largely confined to a few products, Das said that local market players were still to fully utilise new regulatory frameworks and exploit opportunities. Reiterating an issue that the Reserve Bank of India (RBI) has flagged numerous times over the past year, Das said that retail players are yet to receive the same fine pricing that large customers enjoy. "Divergence in pricing in FX (foreign exchange) markets for the small and large customers are wider than what can be justified by operational considerations," Das said, adding that lenders may need to do more to facilitate the use of the FX Retail Platform.

Disclaimer: The information provided in this post is derived from Business Standard, dated April 9th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

🚀 Exciting Times Ahead for India's Economy! 💼

India's growth trajectory continues to inspire confidence and optimism as RBI Deputy Governor Michael Debabrata Patra forecasts a remarkable 10% growth rate for the nation in the next decade. Speaking at Nomura's 40th Central Bankers Seminar in Kyoto, Japan, Patra outlined the key drivers propelling India towards becoming the second-largest economy by 2032 and the largest by 2050.

📈 Despite the challenges posed by the pandemic, India's resilience shines through, with early indicators suggesting a resurgence above the 7% growth rate witnessed in the pre-COVID era. Patra highlights the IMF's upward revisions in growth forecasts, with India projected to contribute a significant 16% to global growth, solidifying its position as a major player in the world economy.

💪 Fueled by favorable demographics, stable currency dynamics, and technological advancements, India stands poised for exponential growth. Patra emphasizes the importance of addressing challenges such as skill gaps and low female labor participation to fully unlock India's economic potential.

🛍️ Embracing the mantra of "Make in India for the World," Patra underscores the need to ramp up efforts in expanding India's export footprint across diverse sectors including IT, agriculture, tourism, financial services, and e-commerce.

🌐 With concerted efforts and strategic initiatives, India is poised to carve its path towards economic supremacy on the global stage. Let's seize the opportunities, overcome challenges, and chart a course towards a prosperous future for India!

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Source: Economic Times, 29th Mar 2024.