Tax Saving Options
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Tax Saving Options
[email protected]
Agenda • • • •
Options available for tax saving investment. Why ELSS scores over traditional options. Performance of ELSS schemes. Conclusion.
Section 80 C • Section 88 was scrapped and 80 C was introduced in finance bill 2005. • Instead of offering tax rebates, investment under Section 80 C qualifies for deduction from gross total income. • Sectoral investment cap has been removed under Section 80 C as was the case under Section 88. • This allows investor to invest as per his/her risk profile.
Options Available under Section 80 C Investment Avenue
% Return
Minimum Investment
Maximum Investment
Lock In Period
Feature
National Saving Certificate
8
100
No Limit
6 Years
Interest is taxable
Public Provident Fund
8
Rs500
Rs.70,000
15 Years
Tax Free Return
Time Deposit
6.25-7.5
Rs200
No Limit
5 Years (to avail 80C benefit)
Interest is taxable
Senior Citizen Saving Scheme
9
Rs1000
Rs15 lakh
5 Years (to avail 80C benefit)
minimum age is 55 to avail this option.
Bank F.D.
9
-
No Limit
5 Years (to avail 80C benefit)
Interest is taxable
Equity Linked Saving Scheme
market driven but one can expect 15-17% return.
Rs.500 to Rs.5000
3 Years
Lowest lock in period with maximum possible return.
No Limit
• Apart from these, insurance premium on life insurance policies and principal component of housing loan are also eligible for Section 80 C benefit.
Are You One of Those Who Still Go for Traditional Instruments like Bank F.D. and PPF?
OR Smart Enough to Take Dual Advantage of Low Valuations and Tax Benefit by Investing in ELSS.
Lets Take a Case Study to help you in Decision making. • Mr. Ram prefers investing Rs.70000 in PPF to earn secured return. He has invested this amount of 31st March of every year since 1996. • Mr. Shyam has invested Rs.70000 every year on 31st March in ELSS scheme (Birla Sunlife Tax Relief 96) since 1996. • Both have invested Rs.9.1 lacs till 31st March 2008.
Who has taken Wise Decision? • Stock markets are down by 60% in 2008 from 21000 to 9000. • Mr. Ram feels proud on his decision of not investing in ELSS and choosing PPF. So you will also agree with Mr. Ram as PPF has given Him fixed return of 8% over the years. But Is It Really a Smart Decision?
Look Who Has Made More Profit? ELSS v/s PPF 70 60 62.78
50 Value (Rs. 40 Lacs) 30 20 10 0
16.89 9.1
Investment
Ram
Shyam
Returns as on 31.10.08
Shyam has made almost 4 times more money than Ram by investing in Birla Sunlife Tax Relief rather than PPF
Performance Scorecard Schemewise Performance as on 31st Oct 2008 Scheme Name 5 Years 7 Years 10 Years Birla Sun Life Tax Relief -96 Fund 14.46 23.21 27.22 Franklin India Taxshield Gr 20.13 26.37 NA HDFC Long Term Advantage Fund 21.48 31.76 NA HDFC Taxsaver - Gr 24.19 30.33 NA ICICI Prudential Tax Plan-Gr 18.78 28.4 NA SBI Magnum Tax Gain Fund - Div 31.45 34.73 25.14 Bank F.D. 9 PPF 8 8 8
Index Name BSE 200 BSE 30 (SENSEX) BSE 500 CNX Midcap NSE 50 NSE 500
Market Index Performance 5 Years 7 Years 13.23 20.42 14.79 18.11 NA NA 20.94 29.74 13.13 16.39 12.79 19.68
10 Years 12.34 13.28 NA NA 13.4 14.71
12 Years 30.85 NA NA NA NA 21.83 8
12 Years 10.66 9.91 NA NA 10.12 11.45
Returns as on 31.10.08
ELSS Schemes have clearly outperformed not only traditional options but also broader indices.
Solid SIP Returns. Schemewise SIP Return as on 31st Oct 2008 Birla Sun Life Tax Relief -96 Fund Franklin India Taxshield Gr HDFC Long Term Advantage Fund - Gr HDFC Taxsaver - Gr ICICI Prudential Tax Plan-Gr SBI Magnum Tax Gain Fund - Div Sundaram BNP Paribas Tax Saver-Div
7 Years
10 Years
12 Years
13.46 18.96 21.19 23.28 19.51 29.84
17.37
24.20
N.A. N.A. N.A. N.A.
N.A. N.A. N.A. N.A.
23.72
23.29
24.61
N.A.
N.A.
SIP is assumed on 10th of every month.
ELSS funds have solid track record of consistence performance.
ELSS : Effective way of saving taxes. Your earning
Tax without ELSS
Tax with ELSS
You save
200,000
5,150
0
5,150
300,000
15,450
5,150
10,300
500,000
56,650
36,050
20,600
750,000
123,600
92,700
30,900
1,000,000
211,150
180,250
30,900
Amount in Rs. Based on Tax Slab for FY 08-09 Assuming an investment of Rs. 100,000 in ELSS in this Financial Year
Operational Efficiency. • ELSS scores over other options as it comes with lowest lock in period of just three years. • Very easy to operate as it requires only PAN card on part of investor. • Investment can be get done just by signing an application form and cheque. • It is one of the most transparent of all the options available as portfolio of the scheme gets published on a monthly basis.
Conclusion. • It provides opportunity to create wealth in long term which allows investor to combine tax saving with wealth creation objective. • The only option that can beat inflation by wide margin in long term return.
So BE Wise by Taking Wise Decision of Choosing ELSS and make Tax Saving a Step Toward Wealth Creation.
[email protected]
Agenda • • • •
Options available for tax saving investment. Why ELSS scores over traditional options. Performance of ELSS schemes. Conclusion.
Section 80 C • Section 88 was scrapped and 80 C was introduced in finance bill 2005. • Instead of offering tax rebates, investment under Section 80 C qualifies for deduction from gross total income. • Sectoral investment cap has been removed under Section 80 C as was the case under Section 88. • This allows investor to invest as per his/her risk profile.
Options Available under Section 80 C Investment Avenue
% Return
Minimum Investment
Maximum Investment
Lock In Period
Feature
National Saving Certificate
8
100
No Limit
6 Years
Interest is taxable
Public Provident Fund
8
Rs500
Rs.70,000
15 Years
Tax Free Return
Time Deposit
6.25-7.5
Rs200
No Limit
5 Years (to avail 80C benefit)
Interest is taxable
Senior Citizen Saving Scheme
9
Rs1000
Rs15 lakh
5 Years (to avail 80C benefit)
minimum age is 55 to avail this option.
Bank F.D.
9
-
No Limit
5 Years (to avail 80C benefit)
Interest is taxable
Equity Linked Saving Scheme
market driven but one can expect 15-17% return.
Rs.500 to Rs.5000
3 Years
Lowest lock in period with maximum possible return.
No Limit
• Apart from these, insurance premium on life insurance policies and principal component of housing loan are also eligible for Section 80 C benefit.
Are You One of Those Who Still Go for Traditional Instruments like Bank F.D. and PPF?
OR Smart Enough to Take Dual Advantage of Low Valuations and Tax Benefit by Investing in ELSS.
Lets Take a Case Study to help you in Decision making. • Mr. Ram prefers investing Rs.70000 in PPF to earn secured return. He has invested this amount of 31st March of every year since 1996. • Mr. Shyam has invested Rs.70000 every year on 31st March in ELSS scheme (Birla Sunlife Tax Relief 96) since 1996. • Both have invested Rs.9.1 lacs till 31st March 2008.
Who has taken Wise Decision? • Stock markets are down by 60% in 2008 from 21000 to 9000. • Mr. Ram feels proud on his decision of not investing in ELSS and choosing PPF. So you will also agree with Mr. Ram as PPF has given Him fixed return of 8% over the years. But Is It Really a Smart Decision?
Look Who Has Made More Profit? ELSS v/s PPF 70 60 62.78
50 Value (Rs. 40 Lacs) 30 20 10 0
16.89 9.1
Investment
Ram
Shyam
Returns as on 31.10.08
Shyam has made almost 4 times more money than Ram by investing in Birla Sunlife Tax Relief rather than PPF
Performance Scorecard Schemewise Performance as on 31st Oct 2008 Scheme Name 5 Years 7 Years 10 Years Birla Sun Life Tax Relief -96 Fund 14.46 23.21 27.22 Franklin India Taxshield Gr 20.13 26.37 NA HDFC Long Term Advantage Fund 21.48 31.76 NA HDFC Taxsaver - Gr 24.19 30.33 NA ICICI Prudential Tax Plan-Gr 18.78 28.4 NA SBI Magnum Tax Gain Fund - Div 31.45 34.73 25.14 Bank F.D. 9 PPF 8 8 8
Index Name BSE 200 BSE 30 (SENSEX) BSE 500 CNX Midcap NSE 50 NSE 500
Market Index Performance 5 Years 7 Years 13.23 20.42 14.79 18.11 NA NA 20.94 29.74 13.13 16.39 12.79 19.68
10 Years 12.34 13.28 NA NA 13.4 14.71
12 Years 30.85 NA NA NA NA 21.83 8
12 Years 10.66 9.91 NA NA 10.12 11.45
Returns as on 31.10.08
ELSS Schemes have clearly outperformed not only traditional options but also broader indices.
Solid SIP Returns. Schemewise SIP Return as on 31st Oct 2008 Birla Sun Life Tax Relief -96 Fund Franklin India Taxshield Gr HDFC Long Term Advantage Fund - Gr HDFC Taxsaver - Gr ICICI Prudential Tax Plan-Gr SBI Magnum Tax Gain Fund - Div Sundaram BNP Paribas Tax Saver-Div
7 Years
10 Years
12 Years
13.46 18.96 21.19 23.28 19.51 29.84
17.37
24.20
N.A. N.A. N.A. N.A.
N.A. N.A. N.A. N.A.
23.72
23.29
24.61
N.A.
N.A.
SIP is assumed on 10th of every month.
ELSS funds have solid track record of consistence performance.
ELSS : Effective way of saving taxes. Your earning
Tax without ELSS
Tax with ELSS
You save
200,000
5,150
0
5,150
300,000
15,450
5,150
10,300
500,000
56,650
36,050
20,600
750,000
123,600
92,700
30,900
1,000,000
211,150
180,250
30,900
Amount in Rs. Based on Tax Slab for FY 08-09 Assuming an investment of Rs. 100,000 in ELSS in this Financial Year
Operational Efficiency. • ELSS scores over other options as it comes with lowest lock in period of just three years. • Very easy to operate as it requires only PAN card on part of investor. • Investment can be get done just by signing an application form and cheque. • It is one of the most transparent of all the options available as portfolio of the scheme gets published on a monthly basis.
Conclusion. • It provides opportunity to create wealth in long term which allows investor to combine tax saving with wealth creation objective. • The only option that can beat inflation by wide margin in long term return.
So BE Wise by Taking Wise Decision of Choosing ELSS and make Tax Saving a Step Toward Wealth Creation.
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