Tax Planning Investment

Welcome to

Tax & Investment Planning Seminar

Income Slab

Income Tax Rates

Upto Rs 1,00,000

NIL 10% of the amount exceeding Rs 1,00,000 Rs 5,000 + 20% of the amount exceeding Rs 1,50,000 Rs 25,000 + 30% of the amount exceeding Rs 2,50,000/-

Rs 1,00,000 - Rs 1,50,000 No Surcharge Rs 1,50,000 - Rs 2,50,000 No Surcharge

Above Rs 2,50,000 10% Surcharge

COMPARISON BETWEEN VARIOUS TAX SAVING OPTIONS Options

Maximum amount

Tax Saving Lock-in Period

Option under section 80CCC LIC Jeevan Suraksha Rs 10,000 10% to 33% Options under section 88 Equity Linked Saving Rs 10,000 Scheme (ELSS) Mutual Fund Pension Plan Rs 70,000 Infrastructure Bonds Rs 1,00,000 Public Provident Fund Rs 70,000 15% or 20% (PPF) National Saving Certificate Rs 70,000 (NSC) ULIP of UTI Rs 70,000 LIC premiums Rs 70,000 Return of Principal of Rs 20,000 Housing Loan Maximum amount eligible for tax relief under section Rs 1,10,000 88 and 80CCC.

Term of the policy

Returns

Tax on Returns

5 to 6%

Applicable rate

3 Years > 10% Till the age of 58 yrs > 8% 3 Years 6.75 % to 7%

10% 10% Applicable rate

6 years minimum 10 or 15 years Term of the policy

8 % compunded yearly Tax Free 8% compounded half yearly Applicable rate >6% Applicable rate >6% Tax Free

N/A

N/A

6 years minimum

N/A

Section 88 100,000/= Infrastructure bond Rs. 30,000/= Repayment of Housing loan principal-20K ELSS-10K 40,000/= LIC, PPF, CPF, and pension plan..etc-40K

Other Deductions Section 80 CCC: Jeevan Suraksha upto Rs. 10,000/= Section 80 D :

Upto Rs. 10,000/= towards mediclaim

Section DD:

Handicapped dependant expenses upto Rs. 40000/=

Section 80 DDB: Medical expenses towards chronic disease - upto Rs. 40,000/=

Section 24 (I)

Upto Rs 1,50,000/- paid towards interest on housing loan is deductible from taxable income.

Recommendation Make a house - don’t just live in it.

Insurance Myths: •Insurance is just another tax saving instrument. •I do not need an insurance now. May be later... •Why wait for 30 years? - let me take a policy for 15 years (or may be 10).

The Facts: •Lower the age, lower the premium, - higher the age higher the premium. •As we get older - Health becomes a major impediment to getting high insurance cover. •Longer the duration of policy - lesser is the premium.

A THIEF CALLED INFLATION 2020

Items

1980

2001

TOOTHPASTE

4.05

19

104

LPG GAS

26.25

250

960

MASALA DOSA

1.5

15

286

PETROL

7.9

32

290

MOVIE TICKET

5

50

310

Inflation ….The silent killer! • Present cost of living

RS. 20,000 p.m

• 30 yrs from now

Rs.3,83,887 p.m.

• Retire today

Rs. 20 lacs @ 12%

• Retire 30 yrs from now

Rs.3.83 crores

Value Of Re. 1 Invested In 1980 (Rs.) Period - April 1980 to December 1997

40

Rs. 33.52

Stocks

30

20

Rs. 11.21

Co. Deposits

10

Rs. 4.81

Bank Deposits

0

Apr-80

Oct-82

Apr-85

Oct-87

Apr-90

Oct-92

Apr-95

Oct-97

Value Of Re. 1 After Taxes (Rs.) Period - April 1980 to December 1997

15

Rs. 13.80

Stocks

10

Rs. 5.44

5

Co. Deposits

Rs. 3.00

0

Apr-80

Bank Deposits Oct-82

Apr-85

Oct-87

Apr-90

Oct-92

Apr-95

Oct-97

Value Of Re. 1 After Taxes & Inflation (Rs.) Period - April 1980 to December 1997

4

Rs. 3.16

Stocks

2

Rs. 1.24

Co. Deposits

Re. 0.68

Bank Deposits

0

Apr-80

Oct-82

Apr-85

Oct-87

Apr-90

Oct-92

Apr-95

Oct-97

Post inflation & Taxes Recap - value of 1 Rupee in 17 years. Value

Post-tax Post tax & Inflation

Bank

4.81

3.00

0.68

Co. Deposit

11.21

5.44

1.28

Equity

33.50

13.80

3.18

EQUITIES ARE THE BEST LONG TERM BET % OF STUDIED PERIOD IN WHICH

Other investment outperformed

44%

37%

56%

63%

14%

Stocks outperformed

1 year

3 year

Source : RBI Report on Currency and Finance (1997-98) BSE Sensitive Index of Equity Prices - BSE

86%

5 year

Equities are the best long term bet 20.16%

14.47%

9.74%

9.19% 7.62%

Inflation

Gold

Investment avenues Bank FD Co. FD

Equities

How do we invest in equities or Company Fixed Deposits? • Carry out extensive research and identify the right share/company. • Identify a reliable broker. • Track your investment regularly.

Time …is money

MUTUAL FUND

AS AN ENTITY - IT IS A TRUST AS A CONCEPT - IT IS A SERVICE AS A FUNCTION - IT IS INVESTMENT MANAGEMENT

What Is A Mutual Fund?

It is an investment company through which an investor can pool his money with other investors who have a similar objective.

Mutual Funds: A Packaged Product Diversification

Professional Management

Convenience

Liquidity Tax Benefits

Mutual Funds & Tax Benefits INCOME TAX BENEFITS

Section 88

CAPITAL GAINS BENEFITS

Section 112

Section 88 (2)

Bank F.D. Vs.Mutual Funds Section 112 A m o u n t in v e s te d R s .1 0 0 0 0 0 B a n k F ix e d D e p o s its

M u tu a l F u n d s

R e tu r n s - R s .1 0 0 0 0

R e tu rn s - R s .1 0 0 0 0

T a x @

3 0%

P T R - R s .7 0 0 0

T a x @

1 0%

P T R - R s .9 0 0 0

In d e x a tio n @ R s .3 0 0 0 @

7% 2 0%

P T R - R s .9 4 0 0

RISK Vs RETURNS EQUITY

Time

SECTOR DIVERSIFIED EQUITY

RETURN

BALANCED FUND INCOME FUND BANK FD

RISK

Mutual Fund - The Top Scorer FDs

FI Bonds Open-ended Mutual Funds

Accessibility

Low

Low

High

Tenor

Fixed (Medium)

Fixed (Long)

No Lock-in

Min. Investment Rs. 1000

Rs. 5000

Rs. 500

Tax Benefits

None

80L

80L , 112

Liquidity

Low

Very Low

Very High

Convenience

Medium

Tedious

Very High

Transparency

None

None

Very High

What Is Wrong With The Way We Save? ➨ Over 50% of our household savings are invested in assets that are ➨ poor inflation fighters ➨ not tax efficient.

disciplined and systematic in approach

➨ Our saving habits are not

➨ We face the possibility of outliving our savings.

Rs. 808

EFFECT OF COMPOUNDING (Re. 1 invested for 30 years)

SB Rs. 4

COM LIC FD PPF NSC Bk FD

BUSINESS OR EQUITY

Rs. 234

Rs. 67 Rs. 17 5%

10%

15%

20%

25%

Invest Early BOTH ARE OF SAME AGE

Anu starts investing at 25 year’s age

Prakash starts investing at 35 year’s age

Invests Rs. 5000 monthly for 10 years

Invests Rs. 5000 monthly for 25 years

Total Investment : Rs.

Total Investment : Rs. 15 lakhs

6 lakhs

Who has more money at the age of 60?

Invest Early

At the age of 60…. Anu has Rs. 4.6 crores

Prakash has Rs. 1.5 crores

It costs Prakash Rs. 3.1 crores to wait 10 years Assumed 15% p.a. compounded annually

START EARLY; SAVE REGULARLY Every Year Counts

Rs. 10000/= p.a. or Rs.833.33 p.m. 10,133,456

Savings

Returns *

7,643,653 4,999,569

350,000 Saves from age 25 to 60 * Return of 15% p.a.

330,000

300,000

Saves from age 27 to 60

Saves from age 30 to 60

Strategy To Smart Investing • Identify Objectives • Harness the power of compounding – Start early – Focus long-term - Stay invested

• Be aware of the effects of inflation & taxes • Diversify

SUMMARY • Banks effectively destroy purchasing power. • Manage salary pro-actively and get that raise in salary. • Insure adequately - 5 times annual gross. • Have liquidity in Income Funds. • Use all products - judiciously and maximize your wealth. • Be disciplined.

INVESTMENT OPTIONS • MUTUAL FUNDS • LIFE INSURANCE

• GENERAL INSURANCE • PRIMARY AND SECONDARY MARKET OPERATIONS • RBI BONDS, POST OFFICE DEPOSITS, NSC • 54EA INVESTMENTS • HOUSING LOANS (IDBI BANK) • REAL ESTATE (BUYING AND SELLING OF PROPERTY)