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How can I avoid TDS?

I've been advised by my company's Accounts Personnel to invest Rs. 51,000 to avoid any TDS. I would like to invest the money in such a way that the amount does not get locked; at least the principle remains liquid. At any point of time, if I require the money, I should at least be able to get the principle back. Is this possible? Please advise.
Krithika Sridhar

It is inferred, from your reference to your company's Accounts Personnel, that your income falls under the head "Salaries" for the purpose of income tax. The advice given to you to invest Rs.51,000 to avoid TDS also seems to hint that the investments referred to are investments covered by Section 88 of the Income Tax Act, 1961. Section 88 provides that an assessee shall be entitled to a deduction from the amount of tax payable of an amount equal to 20% of the aggregate of sums invested.

The investments which qualify for this section include Life Insurance premia paid for the assessee & family, contribution to statutory and/or recognised Provident Funds, contribution to Public Provident Fund, contribution towards approved Superannuation Funds, any sum deposited under the Post Office Savings Bank (CTD) Rules, 1951, subscription to National Savings Scheme, any sum paid to subscription to National Savings Certificates (NSC) (VI & VII issues), contribution in Unit Linked Insurance Plan (ULIP) of UTI or LIC Mutual Fund, contribution to notified Equity Linked Savings Scheme (ELSS) of a mutual fund or UTI, and payment made towards instalment for repayment of principal amount of loan taken for purchase/construction of a new residential house property.

The maximum aggregate amount of investment permitted is Rs.60,000/-. An additional sum of Rs.10,000/- can qualify as investment under this section if used to purchase debentures or equity shares of a public company engaged in infrastructure or units of mutual funds referred to in Section10 (23D).The various modes of investments mentioned above involve locking up of the principal amount for periods ranging from 3 to 15 years, yielding periodical or cumulative returns. If the assessee disposes the investments before the minimum lock-in period, then the sum thus received will attract tax in the year of receipt. Hence, if liquidity is most important, then you may choose that mode of investment wherein the lock-in period of the principal is the least e.g. contribution to ELSS of a mutual fund or UTI with a minimum lock-in period of 3 years.

I have retired from government service on Sep 30, 1999. I am likely to get about Rs.10 lakhs as gratuity, PF, commuted pension & leave encashment. Besides, I will get a monthly pension of Rs.10,000. Please advise me how should I invest my money to get maximum tax benefits?
National Bank Staff College

Under various provisions of the Income Tax Act, 1961, the sum of Rs.10 lakhs likely to be received by you on retirement from government service would have tax implications as below: 1. Gratuity received will be wholly exempt under Section 10 (10) (i) 2. Any amount received as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of retirement/superannuation will be exempt from tax under Section 10 (10AA) (i) of the Act 3. Any commuted pension received will be wholly exempt from tax under Section 10 (10A) (i). 4. Amount received as Provident Fund will be wholly exempt from tax under Section 10 (11).

The monthly pension of Rs.10,000/- that you will receive will be taxable as salary. However, your annual salary (in the form of pension) income will be eligible for Standard Deduction of Rs.20,000/-.

The sum received by you on retirement could, depending on the choice of the mode of investment, earn you interest or dividend income. Dividend income is exempt from tax. Interest income will attract tax. However, on such income a deduction is allowed under Section 80L of the Act. The maximum amount of deduction available is Rs.12,000 with an additional deduction of Rs.3,000 permitted for interest on units of UTI/mutual fund and interest on any security of Central or State Governments.

Investments (maximum of Rs.70,000) under Section 88 of the Act will earn a rebate upto 20% of the amounts so invested on the amount of tax payable on your salary and interest incomes.

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