Income Tax

PGP-FW-06/08 Amogh Manjavkar – 05 Apurva Prasad – 08 Bhumika Goel – 10 Hitesh Patel – 20 Karan Rajasth – 25 N.Ramakrishnan – 33 S.Abilash – 60

“The difference between tax avoidance and tax evasion is the thickness of a prison wall”. - Denis Healey

 Tax evasion includes all the methods by which tax liability is illegally avoided and the assessee guilty of tax evasion is punishable under the relevant laws.

 Tax avoidance refers to reduction of the tax liability by taking help of loopholes existent in the law in its present form.

 Tax planning is often defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deductions, exemptions, allowances and rebates so that a person’s tax liability reduces to the minimum.

Tax Evasion Tax evasion is a global scourge. The “black” economy has, by some estimates, reached 10% of GDP in advanced countries and can top 70% in developing countries. And it is getting worse. Tax evasion is usually confronted in two ways: audits and harsh sanctions. But, as the rising tide of tax evasion suggests, these mechanisms amount only to a cat game of and mouse problem — and the mice, it seems, are winning. As tax evasion becomes more pervasive, whole networks to help hide incomes have appeared, making it far less likely that those who break the law are punished. Moreover, because more people are evading taxes, tax administrations are under increasing pressure to become more lenient or to accept bribes.

One strategy for weakening ties among potential evaders is to introduce various conflicts of interests. For example, value-added tax is designed to encourage firms to procure invoices for their inputs in order to reduce their own tax outlays. But the results often fall short of the potential benefits, because VAT has helped inspire tax evaders to create even stronger networks that can hide an entire chain of transactions. The Chinese have devised a novel solution. To encourage customers to request official receipts as proof of payment, some local tax authorities issue a type of receipt that doubles as a lottery ticket. The receipts can be used as scratch cards

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to win small amounts of cash, but they also serve as lottery tickets for winning larger amounts. To prevent forgery, businesses must purchase special, patented machines for printing these receipts. Records of the printed receipts are automatically transmitted to the tax authorities and are used to calculate taxes. Similar systems are in use in Taiwan and Latin America.

Another way to reward consumers for combating tax evasion is to offer subsidies. Some developing countries have introduced a far-reaching VAT refund system for consumers who collect official receipts. Northern Cyprus, like Turkey, offers a 2.5 percentage point refund on VAT, compared to the standard VAT rate of 13%. But such systems are burdened by large administration and compliance costs. The process of collecting and verifying claims is time-consuming, and the net benefit for taxpayers is low. Moreover, the method is vulnerable to illicit practices, such as collecting receipts issued to foreigners and students, who cannot claim their own refunds.

Monetary subsidies to consumption are also often granted in developed countries for a variety of purposes, not least of which is fighting tax evasion. One such subsidy is permitting deduction of a fixed percentage of certain expenses from income tax. In Italy, expenditures for home improvements have been partly deductible for the past ten years, mainly to improve tax compliance by firms in the housing sector. New regulations have recently been introduced with the specific aim of cracking down on moonlighting. Under the 2007 financial law, those who claim the home improvement deduction must supply an invoice from the building contractor, which must specify the cost for labour.

In terms of reducing tax evasion, the results have been mixed. The bulk of claims for the subsidy come from northern Italy, which is usually considered less prone to tax evasion to begin with. While some cases of illegitimate claims are under investigation, there is no black market for receipts; fraud seems to arise mainly through falsified invoices.

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Income Tax Act, 1961 – Income from Salary Salary is chargeable either on ‘due basis’ or on ‘receipt basis’ whichever is earlier. Normally, the place of accrual of salary is the place where the services are rendered. For the income to be taxable under this head, the relationship of employer and employee must exist between the payer and payee. Section 17(1), salary includes: -Wages -Any annuity or pension. -Any gratuity -Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages. -Any advance of salary. -Any payment received in respect of any period of leave not availed by the employee. -Portion of the annual accretion in any previous year to the balance at the credit of an employee participating in recognized provident fund to the extent it is taxable. -Transferred balance in a recognized provident fund to the extent it is taxable. -The contribution made by the central government in the previous year, to the account of an employee under a pension scheme referred to in Section 80CCD

Basis of Charge Section 15 Salary includes:

 Any salary due from an employer to an assessee in the previous year whether actually paid or not;  Any salary paid or allowed to him in the previous year by or on behalf of an employer though not due or before it became due;  Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer, if not charged to income tax for any previous year.

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Deductions u/s 16 Rs. Gross Salary Less: Deductions u/s 16 Entertainment Allowance [Sec.16(ii)] Professional Tax [16 (iii)] Income From Salary

xxx xxx

Rs. XXX

(XXX) XXX

Leave Salary [Section 10(10AA)]: Leave encashment while in service is taxable. Encashment of sick leave is taxable. Leave encashment received at the time of retirement is fully exempt in the case of Government Servants. In the case of non-Govt. Employees, leave encashment is exempt to the extent of the least of the following four amounts: •

Rs. 3,00,000/-

•

Ten months' average salary;

•

Cash equivalent of the leave due at the time of retirement;

•

Leave encashment actually received at the time of retirement.

Here the average salary means the average of the salary drawn during the last ten months before retirement.

Gratuity [Section 10(10)]: Any death cum retirement gratuity received by Government or Local Authority employees is exempt from tax. For Non-Government Employees the taxability depends on whether Gratuity is covered under the Gratuity Act A)

Gratuity covered under the Gratuity Act

For Gratuity covered under the Gratuity Act, total of gratuity received by an employee, covered by the Gratuity Act, from various employers in whole of service is exempt from tax to the extent of least of the following three amounts:

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•

15 days' salary, based on the last drawn salary, for each completed year of service

•

Rs. 3,50,000/-; or

•

The gratuity actually received.

B)

Gratuity not covered under the Gratuity Act

For Gratuity not covered under the Gratuity Act any gratuity not covered by the Gratuity Act, is exempt from tax to the extent of least of the three amounts •

The half month's salary for each completed year of service; or

•

Rs.3,50,000/-; or

•

The gratuity actually received.

Pension [Section 10(10A)]: Pension is a periodic payment of money for past service and it is received by employee after his retirement and is taxed as salary. Uncommuted pension is taxable in the hands of both government and non-government employees. In case commuted pension: 1.

Any amount received by Government employee as commutation of

pension is fully exempted from tax u/s 10(10A)(i). 2.

But in case of non-government employee the amount exempt from tax

is:

 Where he receives gratuity: Commuted value of 1/3 of pensions which he is normally entitled to receive; and

 When he does not get gratuity: Commuted value of 1/2 of such pension.

Retrenchment Compensation [Section 10(10B)]:

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Compensation received by a workman at the time of retrenchment is exempt to the extent of least of the following: i.

An amount calculated under Industrial Disputes Act, 1947; or

ii.

Rs.500000;or

iii.

The amount actually received, whichever is less

Payment Received at the time of Voluntary Retirement [Section 10(10C) and Rule BA]: The compensation received or receivable by an employee at the time of his voluntary retirement or separation or termination is a profit in lieu of salary chargeable to tax. Voluntary Retirement Scheme is applicable to an employee of a public sector company or an employee who has completed 10 years of service or completed 40 years of age. It applies to all employees except the directors of the company. The maximum amount of exemption under this scheme is Rs.500000. This exemption once availed is no available in any later assessment year. Least of the following is exempt: i.

Last drawn salary x 3 months x completed years of service; or last drawn salary x remaining months of service; or

ii.

Rs.500000; or

iii.

Actual compensation received.

Calculation of Allowances Most allowances are taxable like City Compensatory allowance, tiffin allowance, fixed medical allowance and servant allowances; encashment of any concession is also taxable. A)

House Rent Allowance

Out of house rent allowance received during the year, least of the following three amounts will not be included in income: -

7

•

The amount equal to 50% of annual salary, for persons staying in Mumbai, Chennai, Calcutta or Delhi, but 40%, for others

•

The actual amount of house rent allowance received

•

The amount of rent actually paid in excess of 10% of annual salary

Here, salary includes basic salary, dearness allowance, and commission on fixed percentage, but not other allowances. B)

Transport allowance

Transport allowance for traveling from residence to office is exempt up to Rs 800 per month. C) Any allowance granted for encouraging the academic, research and other professional pursuits To the extent the allowance is utilised for the purpose specified. D) Children Education Allowance Rs. 100 per month per child up to a maximum of two children E) Any allowance granted to an employee to meet the hostel expenditure on his child Rs. 300 per month per child up to a maximum of two children

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Type of Allowance

Amount exempt Rs.800 common for various areas of North East ,Hilly areas of U.P.,H.P. & J&K

(i) Leave Compensatory Allowance or high and Rs. 7000 per month for Siachen area altitude allowance or climate allowance

of J&K and Rs. 300 common for all places at a height of 1000 mts or more other than the above places.

(ii)A border area allowance or remote area allowance or a difficult area allowance or disturbed area allowance. (iii)

Various amounts ranging from Rs.200 per month to Rs. 1300 per month are exempt for various areas specified in Rule 2BB

Tribal area allowance. Available

in

M.P.,Assam,U.P., Kaarnataka, West bengal Rs.200 per month. Bihar,Orissa. (iv) Any allowance granted to an employee working in any transport system to meet his personal expenditure during duty performed in the course of running of such transport

70% of such allowance upto a maximum of Rs. 6000 per month.

from one place to another. Rs. 100 per month per child upto a

(v)Children education allowance (vi)Allowance

granted

to

maximum of 2 children.

meet

hostel Rs. 300 per month per child upto a

expenditure on employee's child.

maximum of two children.

(vii) Compensatory field area allowance available in various areas of Arunachal Pradesh, Manipur, Nagaland, Sikkim, H.P.,

Rs, 2600 per month.

U.P. & J&K. (viii)Compensatory

modified

field

area Rs. 1000 per month

allowance available in specified areas of

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Punjab, Rajsthan,Haryana,U.P.,J&K,H.P.&North East Type of Allowance (x)Transport

Allowance

Amount exempt granted

to

an

employee to meet his expenditure for the purpose of commuting between the place of

Rs. 800 per month

residence & duty (xi)Transport

allowance

granted

to

physically disabled blind employee for the purpose of commuting between place of

Rs. 1600 per month.

duty and residence (xii)Underground allowance granted to an employee working in under ground coal Rs. 800 per month mines. (xiii)Special allowance in the nature of high altitude allowance granted to member of the armed forces

Rs.1060

p.m.(for

altitude

of

9000-

15000ft.)

(xiv)Special allowance granted to members of armed forces in the nature of island duty Rs.3,250/allowance.

Calculation of Perquisites The following perquisites are not taxable either under the executive instructions of the Central Board of Direct Taxes or by virtue of specific provision in the Act/Rules : Rent-Free House •

Rent-free official residence provided to a judge of a High Court or of the Supreme Court.

•

Rent-free furnished residence (including maintenance thereof) provided to an official of Parliament, a Union Minister or a Leader of Opposition in Parliament

•

Accomodation provided in a 'remote area' to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accomodation provided in an offshore site of similar nature.

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•

Accomodation provided on transfer of an employee in a hotel for not exceeding 15 days in aggregate.

Car •

Re-imbursement of expenses in respect of car (which is owned by employee and used for personal and official purpose) (amount not taxable is up to Rs. 1,200 per month for car having engine capacity of not more than 1600cc, Rs. 1,600 per month for car of above 1600cc and Rs. 600 per month for driver).

•

Conveyance facility provided to High Court Judges and Supreme Court Judges.

•

Conveyance facility provided to an employee to cover the journey between office and residence.

Interest-Free Loan •

Interest-free / concessional loan of an amount not exceeding Rs.20,000

Others •

Gift-in-kind up to Rs.5,000 in a year.

•

Employer's contribution to staff group insurance scheme.

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Salary restructuring & Tax Planning It is common among salaried employees to complain about having to pay huge taxes. An employee can structure/ restructure his salary so as to reduce the tax outgo on his total salary by including exempt allowances or reimbursements. Some such beneficial allowances/ reimbursements are: Telephone facility: Telephone facility received by an employee at his residence is not taxable in the hands of the employee as against telephone allowance, which is always taxable. Medical reimbursements: An employee should opt for medical reimbursements, which are exempt up to Rs 15,000 p.a. as against any medical allowance, which is taxable in all cases. Children education allowance: The Act encourages children’s education by granting an exemption of Rs 100 per month per child under the above heading. A

category

often

ignored,

though,

is

the

children’s

hostel

expenditure

allowance, which is exempt up to Rs 300 per month per child (both exemptions are available up to a maximum of two children.) Provident fund balance: High attrition level is the order of the day across industries. However, the job-hoppers themselves are often unsure about the future of the accumulated balance in their provident fund (PF) account. Employees should ensure that in case they resign before completing five years of continuous service with an employer, they transfer the accumulated balance in their recognised PF account to the new employer in order to avoid paying tax on the same.

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After assessing tax liability, the next step is tax planning. It involves selecting the right tax saving instruments and making investments accordingly.

Deductions from Taxable Income: Deduction under section 80C This

new

section

has

been

introduced

from

the

Financial

Year

2005-06.

Under this section, a deduction of up to Rs. 1,00,000 is allowed from Taxable Income in respect of investments made in some specified schemes. The specified schemes are the same which were there in section 88 but without any sectoral caps (except in PPF).

Specified Investment Schemes u/s 80C •

Life Insurance Premiums

•

Contributions to Employees Provident Fund/GPF

•

Public Provident Fund (maximum Rs 70,000 in a year)

•

NSC

•

Unit Linked Insurance Plan (ULIP)

•

Repayment of Housing Loan (Principal)

•

Equity Linked Savings Scheme (ELSS)

•

Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).

•

Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, and NHAI.

Interest accrued in respect of NSC VIII issue. Notes: 1. There are no sectoral caps (except in PPF) on investment in the new section and the assessee is free to invest Rs. 1,00,000 in any one or more of the specified instruments.

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2. Amount invested in these instruments would be allowed as deduction irrespective of the fact whether (or not) such investment is made out of income chargeable to tax. 3. Section 80C deduction is allowed irrespective of assessee's income level. Even persons with taxable income above Rs. 10,00,000 can avail benefit of section 80C. Please note that because the deduction is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the individual. Thus, a person in 30% tax stab can save income tax up to Rs. 30,600 (or Rs. 33,660 if annual income exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified schemes u/s 80C.

Deduction under section 80 CCC (1) This section allows a deduction of up to Rs. 10,000 to an individual in respect of contribution to 'Pension' scheme of LIC of India or any other Insurance Co. Accordingly, a person who is in 30% tax bracket can save income tax of Rs 3,060 (or Rs. 3366 if annual income exceeds Rs 10,00,000) by contributing Rs 10,000 towards Pension plan in a year. Some of the popular pension plans are Jeevan Suraksha by LIC, Life Time Pension By ICICI Prudential Life Insurance, Aviva Life - Pension Plus by Aviva Life Insurance, Max-Easy Life policy by Max New York Life, Nirvana Plus by Tata AIG Insurance Etc.

Section 80 CCE Aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD can not exceed Rs. 1,00,000.

Deduction under section 80D Under This section, a deduction up to Rs 15,000 (Rs 20,000 in case of senior citizens) is allowed in respect of premium paid by cheque towards health insurance policy, like "Mediclaim". Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children. Accordingly a person who is under/in 30% tax bracket can save income tax up to Rs 3,060 (or Rs. 3366 if annual income exceeds Rs 10,00,000) by paying Rs 10,000 as premium in "Mediclaim" policy in a year.

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Deduction under section 24(b) Under this section, Interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs. 1,50,000 with some conditions to be fulfilled

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Case-1 Mr.Shyam was an employee with ABC Ltd. (pvt.sector) and retired on 31st April, 2007. He received pension of Rs.6000 per month up to 31st October 2007. On the 1st of November, 2007 he got 2/3 of his pension commuted for Rs.400000. X received gratuity of Rs.600000 which is not covered under Payment of Gratuity Act, 1972. His Basic salary was Rs.10000 pm (last 12 months average) and his commission for P.Y 2006-07 has been Rs.120000. X has been in service for the past 30 years and 8 months. He’s 58 and he wants to minimize his tax liability. Minimise his tax liability for P.Y 2007-08 & A.Y 2008-09 by suggesting suitable tax plan.

Computation of Gratuity income Gratuity u/s 10(10) Basic Commission Basic + Commission p.a Basic + Commission p.m Completed years of service Gratuity received Less: Exempt 1. [Rs.350000] 2. [1/2 x Basic+Comm p.m x completed years in service] 3. [Gratuity Received] Exempt [Min. of 1.2.3] Taxable Gratuity [Gratuity Received – Gratuity Exempt]

Rs. Rs. Rs. Rs. 30

120,000.00 120,000.00 240,000.00 20,000.00 30.67 600,000.00

350000 300000 600000 Rs.

300,000.00

Rs.

300,000.00

Computation of Pension income Pension u/s 17(1)(ii) -non-Govt.Employee Uncommuted pension

6,000.00

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p.m Months received Months balance Ratio (uncommuted) Commuted pension ratio

[1st April 2007 to 31st October 2007] [1st Nov 2007 to 31st March 2008] 1/3

6 5 0.33

2/3 [(Uncommuted pension p.m x Months

0.67

received)+ (Uncommuted pension p.m Taxable uncommuted

x uncommuted ratio x bal. months)]

Commuted ratio value Commuted Full value Gratuity received ? Amount Exempt

[400000 x 1/ 2/3] [1/3 x Commuted full value] [Commuted ratio value – Amount

Amount Taxable

Exempt] [Taxable commuted+Taxable

Total Taxable

uncommuted]

without- 80 C Particulars Gross Salary Taxable Income Net Tax Payable Gross Effective Tax Rate Net Effective Tax Rate

80 C Particulars

552,000.00 72,718.00 13.17 % 13.17 %

400,000.00 600,000.00 Yes 200,000.00 200,000.00 246,000.00

Rs 552,000.00

46,000.00

Gross Salary Less:- ELSS u/s 80C Taxable Income Net Tax Payable Gross Effective Tax Rate Net Effective Tax Rate

Rs 552,000.00 -100,000.00 452,000.00 46,762.00 8.47 % 10.35 %

Note: Gross Effective Tax Rate = (Net Tax Payable/ Gross Salary) % Net Effective Tax Rate = (Net Tax Payable/ Taxable Income) % For A.Y 2008-09 Taxable income slab (Rs.)

Rate (%)

Up to 1,50,000 Up to 1,80,000 (for women) Up to 2,25,000 (for resident individual of 65 years or above)

NIL

1,50,000 – 3,00,000

10

17

3,00,001 – 5,00,000

20

5,000,001 upwards

• •

30*

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

Recommendation: -

ELSS 80C [Rs.100000] Principals Tax Savings Fund – Dividend, Open-End

NAV: Rs.95.11

Asset Size: Rs.305 crores

Record Date

Dividend (Rs/unit)

15-Jan-07 5-Apr-00

5 5

Year 2007 2006 2005 2004 2003

Absolute Returns (in %) Qtr 1 Qtr 2 Qtr 3 Qtr 4 -4.6 27.2 8.9 28.3 -19.1 14.5 18 0.1 1.9 22.6 11.3 -3.2 -9 17.9 24.5 -4.8 18.1 31.2 31.8

Annual 43 44.3 34.6 94.8

Case-2 Mr. Ram resides in Mumbai and is General Manager (Branch Operations) in ICICI Bank drawing a basic salary of Rs.500000 p.a., Other Allowance of Rs.450000 and receives an H.R.A of Rs.250000 p.a. He’s 38 years old and resides in Borivli-W along with his wife and two children aged 10 and 8. He pays a house rent of Rs.20000 p.m. He wants to minimize his tax liability with the help of a suitable tax plan. HRA u/s 10 (13A) Metro resident

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Basic Commission Salary Rent paid

500,000.00

1 2

Actual HRA received Metro Excess rent paid over 10% of

3

sal.

500,000.00 240,000.00 250,000.00 250,000.00 190,000.00 190,000.00 60,000.00

HRA Exempt Taxable HRA

Income Re-Structuring Pre Other Allowance

Rs. 450000

Post Other Allowance Children Education Allowance Transport Allowance

450000

Pre Basic HRA Other Allowance

Rs. 500000 60000 450000

Post Basic HRA Other Allowance Children Education

Rs. 400000 25000 25000 450000

Rs. 500000 60000 400000

Allowance Transport Allowance

22600 15400

Tax Savings

12000

1010000

1010000

Effective Tax Saving @30% of Rs.2000 + @33.99% Rs.10000 = Rs.4,000

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without- 80 C Particulars

80 C Particulars

Rs

Gross Salary

998,000.00

Taxable Income Net Tax Payable Gross Effective Tax Rate Net Effective Tax Rate

998,000.00 210,532.00 21.10 21.10

Gross Salary Less:- ELSS u/s 80C Taxable Income Net Tax Payable Gross Effective Tax Rate Net Effective Tax Rate

Rs 998,000.00 -100,000.00 898,000.00 179,632.00 18.00 20.00

Note: Gross Effective Tax Rate = (Net Tax Payable/ Gross Salary) % Net Effective Tax Rate = (Net Tax Payable/ Taxable Income) % For A.Y 2008-09 Taxable income slab (Rs.)

Rate (%)

Up to 1,50,000 Up to 1,80,000 (for women) Up to 2,25,000 (for resident individual of 65 years or above)

NIL

1,50,000 – 3,00,000

10

3,00,001 – 5,00,000

20

5,000,001 upwards

•

30*

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

•

Recommendation: -

ELSS 80 C [Rs.100000] SBI Magnum Tax Gain Scheme (G) – Open End

NAV: Rs.52.63

Asset Size: Rs.3549 crores

Absolute Returns (in %) Year

Qtr 1

Qtr 2

Qtr 3

Qtr 4

Annual

2007

-5.6

16.4

14.8

-

-

2006

19.3

-13.7

16.2

17

44.1

2005

15.1

20.3

26.2

7.1

95.7

2004

-8

-10.2

29.3

32.5

51.9

20

2003

-15.4

33.2

32.3

52.4

133.1

Total Tax Savings = [(210532 – 179632) + 4000]

= Rs.34,900 for P.Y 2007-08 A.Y 2008-09

Case-3 Z has completed his MBA and joined ACE Financial Ltd. on 1st April 2007. His remuneration included as follows:Particulars Rs. Basic 105000 HRA 52500 Medical Allowance 15000 PF 12600 Other Allowance 67150 Total Fixed Pay 252250 available for investments/ tax planning.

He lives with his parents in their house and his expenses are limited to 50% of the salary. Therefore his savings (~50% of his earnings) is

Income Re-Structuring Pre Medical Allowance

Rs. 15000

Post Medical Reimbursement

15000 Pre Basic

Rs. 105000

15000 Post

Basic

Rs. 15000

Rs. 105000

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HRA

52500

HRA Medical Reimbursement

52500

Medical Allowance Other Allowance PF

15000 67150 0

[15000-15000] Other Allowance PF

0 67150 0

Tax Savings

15000

239650

239650

Effective Tax Saving @10% x 15000 = Rs.1,500 without- 80 C Particulars Gross Salary Taxable Income Net Tax Payable Gross Effective Tax Rate Net Effective Tax Rate

80 C Particulars

Rs 224,650.00

224,650.00 7,689.00 3.42 3.42

Gross Salary Less:- ELSS u/s 80C Taxable Income

Rs 224,650.00 74,650.00 150,000.00

Net Tax Payable Gross Effective Tax Rate

0.00 0.00

Net Effective Tax Rate

0.00

Note: Gross Effective Tax Rate = (Net Tax Payable/ Gross Salary) % Net Effective Tax Rate = (Net Tax Payable/ Taxable Income) % For A.Y 2008-09 Taxable income slab (Rs.)

Rate (%)

Up to 1,50,000 Up to 1,80,000 (for women) Up to 2,25,000 (for resident individual of 65 years or above)

NIL

1,50,000 – 3,00,000

10

3,00,001 – 5,00,000

20

5,000,001 upwards

• •

30*

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

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Recommendation: -

ELSS 80 C [Rs.74,650] SBI Magnum Tax Gain Scheme (G) – Open End

NAV: Rs.52.63

Asset Size: Rs.3549 crores Absolute Returns (in %)

Year

Qtr 1

Qtr 2

Qtr 3

Qtr 4

Annual

2007

-5.6

16.4

14.8

-

-

2006

19.3

-13.7

16.2

17

44.1

2005

15.1

20.3

26.2

7.1

95.7

2004

-8

-10.2

29.3

32.5

51.9

2003

-15.4

33.2

32.3

52.4

133.1

Total Tax Savings = [7689 + 1500]

= Rs.9,189 in P.Y 2007-08 A.Y 2008-09

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Recommendation Profile The following is an exhaustive list of all the instruments that you can invest in to get the benefit of section 80C. 1. Premiums paid towards life insurance policy for self and immediate family 2. Any amount paid towards a deferred annuity scheme like those offered by mutual funds. 3. For government and semi-government employees, any amount which is deducted from your salary towards a deferred annuity scheme. 4. Your contribution towards a Provident Fund, provided that the fund is covered under the Provident Fund Act. 5. Provident Fund opened in the name of immediate family members. 6. Contribution to a recognized provident fund. 7. Contribution to an approved superannuation fund. 8. Contribution to a government savings certificate. This would include post office savings schemes. 9. Premium paid towards a ULIP. 10. ULIP of UTI Mutual Fund and LIC Mutual Fund.

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11. Any payments made to keep in effect an annuity plan of any insurance company. 12. Equity Linked Savings Scheme (ELSS). 13. Contribution to a pension fund set up by a mutual fund subscription. 14. Subscription to any such deposit scheme of, or as a contribution to any such pension fund set up by, the National Housing Bank. 15. As subscription to any such deposit scheme of an authorized company which provides long term finance for construction or purchase of residential houses. 16. Home loan principal repayment. 17. Public offerings of equity shares or debentures. 18. Pension policy where benefits were available under section 80CCC. However, here, the sub-ceiling remains at Rs 10,000

ELSS Investment: In equity linked savings schemes is eligible for tax break. Returns: Returns are linked to equity market performance. Eligibility: Individuals Available at: Mutual Funds Tax benefit IT Section applicable: 80C Limit on investment: Upto Rs 1 lakh. Withdrawal: Tax free after 1 year

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Bibliography/ Webliography Economic Legislation – ICFAI CFA Study Guide – ICFAI Economic Times Business Line incometaxindia.gov.in www.corpmen.com

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