Tax Savings under Sec 80 C ..
ELSS or PPF
ELSS or PPF
Saturday 5 May 2018
Monday 2 April 2018
ELSS .. Tax Savings and Wealth Creation
ELSS is simply the best
investment for tax savings and wealth creation
Call /
SMS: 9440557921 or Write: anand_prem_raj@yahoo.com
Section 80C of Income Tax Act allows tax payers to claim
deductions from their taxable income by investing in certain instruments. The
investment limit eligible for tax deduction in Section 80C has been increased
to र 150,000 from FY 2014
– 2015 onwards, allowing tax payers to save up to र 46,350 in taxes. The
eligible investments in Section 80C include, Employee Provident Fund (EPF)
deducted by the employer, Voluntary Provident Fund (VPF), Public Provident Fund
(PPF), National Savings Certificates (NSC), 5 year tax saving bank fixed
deposits, 5 year tax saving post office deposits, Senior Citizens Savings
Scheme (SCSS), Life Insurance Premiums, National Pension Scheme, notified
mutual fund Pension Plans and Equity Linked Savings Schemes (ELSS). In this
blog, we will compare and contrast some of the most popular tax saving investment
options under Section 80C, and determine the best investment option for wealth
creation. When comparing the popular 80C investment, we will factor in three
important considerations:-
- Returns,
in other words, wealth creation potential
- Tax
treatment of the investment
- Liquidity
of the investment
In this we will review five popular eligible investment options
under Section 80C
- Public Provident Fund
- National Savings Certificate
- Traditional Life Insurance
Plan
- Unit Linked Insurance Plan
- Equity Linked Savings Scheme
Public Provident Fund
PPF is one the most popular choices under Section 80C, since it
offers one of the best interest rates, ensures capital safety and tax exemption
of maturity proceeds. PPF interest rate has been fixed at 8.7% for this fiscal
year (2015 – 16). Though rates may vary from year to year, the yield has been
pegged at 25 basis points above the 10 year Government Bond yield. The tenure
of this instrument is 15 years, and is extendable in blocks of 5 years.
Withdrawals not exceeding 50% of 4th year balance are permitted after a lock-in
period of 7 years. PPF also offers loan facilities. The maximum and minimum
investments currently allowed under PPF is र 150,000 and र 500/- respectively.
National Savings Certificate
NSC has been a popular investment choice for many years. In the
new NSC scheme the interest rates at 8.5% and 8.8%, for the 5 and 10 year
maturities respectively. However, the effective returns are lower, since
interest earned in NSC is fully taxable, at your income tax slab rate.
Traditional Life Insurance Plan
Life insurance premiums are eligible for tax savings under 80C.
You / your nominees get life cover in the event of an untimely death and
survival benefits on completion of the policy term. The policy term ranges from
15 to 25 years. Life insurance plans have a lock in period of three years. You
can surrender your policy after three years, but usually surrender charges
apply. On maturity of the policy you get sum assured plus applicable bonuses.
There are primarily two types of bonuses paid by traditional plans. A simple
reversionary bonus is accrued every year as a percentage of sum assured and
paid at the maturity of the policy. You should note that the bonus accrued is
not compounded, it is only accumulated. In addition, a final additional bonus or
terminal bonus is paid on the maturity of the policy. The bonus rates paid by
traditional endowment plans usually range from 2 – 5% of the sum assured. The
final bonus is usually around 1%. Historically traditional plans have given
around 6% internal rate of return.
Unit Linked Insurance Plan
Unit linked insurance plans (ULIPs) are market linked
instruments. In addition to providing life cover, a portion of your premiums
are invested in purchasing units of a fund of your choice. Like mutual funds,
ULIPs are also subject to market risks. However, on an average equity oriented
ULIP funds have given 15 – 18% annualized returns over a 10 year investment
horizon. However, your effective returns can be much lower because of your
premium will go towards the mortality charges (life cover) and various fees
like premium allocation, policy administration, fund management etc. These fees
are deducted from your premium and only the balance amount is invested in the
units of the fund. In the initial years of your policy life as much as 10% of
your premium can go towards these fees and not be invested to buy units.
Mortality charges depend upon the age and health of the investor. For a 30 year
old investor, on an average it is र 1.4 – 2 per र 1,000 of sum assured per annum.
Equity Linked Savings Scheme
ELSS is a mutual fund scheme that qualifies for tax savings
under Section 80C up to a limit of र 150,000. An ELSS is essentially a diversified equity scheme with
a lock in period of three years from the date of the investment. If you invest
in an ELSS through a systematic investment plan (SIP), each investment will be
locked in for 3 years from their respective investment dates. Compared to other
retirement planning investments under Section 80C ELSS offers higher liquidity
and potentially superior post tax returns. However, as with all mutual fund
investments ELSS are subject to market risks. ELSS funds have given an average
20% trailing annualized returns over the last 3 years, 10% annualized returns
over the last 5 years and 12% annualized returns over the last 10 years.
Therefore purely in
terms of returns ELSS is the best tax saving investment option.
Tax Treatment
To fully evaluate the return on investment, one must also factor
in the impact of taxes on these instruments. Accordingly, one must understand
the tax treatment at three different stages of investment:-
- At the time of making the
investment
- During the tenure of the
investment
- On maturity of the instrument
The table below shows the tax treatment at each stage for
various investment options
Therefore, even in
terms of tax treatment ELSS is one of the best investment options under Section
80C.
Liquidity
Liquidity is an important investment consideration. There is no
general financial planning guidance on liquidity. It depends on the financial
situation of the investor like, income, fixed expenditure, savings pattern,
existing assets, liquidity of those assets etc. When you make an investment,
you should make sure that you are comfortable with the liquidity of the
investment that you are making. The table below shows the liquidity related
considerations for these 80C investment options.
From a liquidity
perspective, ELSS is the best tax saving investment option.
ELSS versus NPS
The only 80C investment option that has the potential to give
returns comparable to ELSS is the National Pension Scheme (NPS). In this budget
the Government has provide additional tax savings for investment in NPS.
Investors can get an additional tax benefit ofर 50,000 over and above the 80C limit of र 1.5 lacs, under Section 80CCD by investing in NPS. This makes
NPS an attractive investment option for tax payers. While fund management costs
in NPS is lower than that of mutual funds, a major disadvantage of NPS versus ELSS
is the tax treatment on maturity. While capital gains in ELSS are tax free, NPS
maturity amount is taxable on withdrawal. The other problem is that, under the
current rules, 40% of the NPS maturity amount must compulsorily be used to
purchase annuities and the annuity income is taxable. There are also limits on
equity allocations in NPS, which younger investors may find too conservative
relative to their risk profile. These disadvantages notwithstanding, NPS is a
good long term investment option. In fact tax payers can maximize their tax
savings by both in ELSS (up to 80C Limit) and NPS to get additional tax benefit
under Section 80CCD.
Conclusion
In this we have objectively reviewed several tax saving options
available to investors. We have seen that ELSS is one of the best tax saving
investments for investors looking to create wealth in the long term.
Call /
SMS: 9440557921 or Write: anand_prem_raj@yahoo.com
Thursday 29 May 2014
Cash inflow at regular intervals
SBI
Life - Smart Money Back
Gold
Call/SMS: 9440557921 OR Write:anand_prem_raj@yahoo.com
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On survival:
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Before maturity: The
survival benefit installments expressed as a fixed percentage of basic sum
assured payable at the end of specified durations during the policy term, as
explained above.
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At maturity: Final
survival benefit installment + Vested simple reversionary bonus + Terminal
bonus, if any.
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On Death:
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In the unfortunate
event of death during the term of the plan, provided the policy is in-force:
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Higher of A or B is
paid to the nominee, where:
A = Sum Assured on death + Vested Simple Reversionary Bonuses + Terminal bonus, if any. Sum Assured on death is higher of Basic Sum Assured or a multiple of annualised premium; where multiple is: |
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B = Minimum death
benefit which is equal to 105% of all the premiums paid.
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Other
Benefits
Additional cover through four set of riders: - |
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SBI
Life - Preferred Term Rider (UIN:111B014V02): The Preferred Term rider Sum Assured is
payable in addition to normal death benefit
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SBI
Life - Accidental Death Benefit Rider (UIN: 111B015V02): In case death due to an accident, the rider
Sum Assured is payable in addition to normal death benefit
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SBI
Life - Accidental Total &Permanent Disability Benefit Rider (111B016V02): The rider Sum Assured will be paid on the Life
Assured being found eligible for the Total & Permanent Disability Benefit
as defined in the policy document.
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SBI
Life - Criti Care 13 Non-Linked Rider (UIN: 111B025V02): The rider sum assured would be payable on the
life assured being diagnosed with any of the thirteen diseases. For details
on illnesses covered, please refer the rider brochure.
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Tax Benefits*:
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Tax deduction under
Section 80 C is available. However in case the premium paid during the
financial year, exceeds 10% of the sum assured, the benefit will be limited
up to 10% of the sum assured.
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Tax deduction under
Section 80(D) is available for premiums paid towards SBI Life - Criti Care 13
Non Linked Rider.
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Tax exemption under
Section 10(10D) is available at the time of maturity/surrender, subject to
the premium not exceeding 10% of the sum assured in any of the years during
the term of the policy. However, death proceeds are completely exempt.
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*
Tax benefits, are as per the provisions of the Income Tax laws & are
subject to change from time to time. Please consult your tax advisor for
details.
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Call/SMS: 9440557921 OR Write:anand_prem_raj@yahoo.com
When tomorrow is certain... today becomes beautiful
SBI Life - Smart Wealth Assure
Introduction:
SBI Life - Smart Wealth Assure is a Unit Linked non-participating Life Insurance Plan. It is a single premium plan, wherein you have to pay premiums once and you can continue to enjoy the benefits throughout the policy term. The plan helps you to enjoy market related returns along with insurance cover, with just a single premium | |||
Key Features: | |||
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Option to choose a mix of funds providing Market Linked Returns
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Market Linked Returns provided through 2 funds – Bond Fund & Equity Fund to give you the best possible returns
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Pay only once and get the benefits throughout the Policy Term
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| • | Liquidity through Partial Withdrawal(s) | ||
| • | Option to customize the product with Accidental Death Benefit Option | ||
Call / SMS: 9440557921 OR Write:anand_prem_raj@yahoo.com
| Benefits: | |||
| • |
Maturity Benefit: On completion of Policy Term, Fund Value will be paid.
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Death Benefit: Higher of the Fund Value or Sum Assured## is payable; with a minimum of 105% of Single premium paid.
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Accidental Death Benefit Option: Provides additional death benefit if the death occurs as a result of an accident.
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Tax Benefits:
Tax deduction under Section 80 C is available. However in case the premium paid during the financial year, exceeds 10% of the sum assured, the benefit will be limited up to 10% of the sum assured. Tax benefits, are as per the provisions of the Income Tax laws & are subject to change from time to time. Please consult your tax advisor for details. | ||
| ## Net of partial withdrawals Call / SMS: 9440557921 OR Write:anand_prem_raj@yahoo.com | |||
Monday 3 March 2014
SBI Life's Shubh Nivesh Vs LIC's New Jeevan Anand...
Triple Life Cover, Whole Life Cover, Life Long Monthly Pension for Self & Spouse and Welath Creation for Children
Call
/ SMS: 9440557921
OR Write: anand_prem_raj@yahoo.com
SBI
Life - Shubh Nivesh is a non- linked, with profit Endowment Assurance
product with an option of Whole Life coverage. The basic purpose is to
provide Savings, Income and Insurance Cover to you and your family. Not
only you can save regularly for your future but you also have the
flexibility to receive the maturity amount as a lump sum or as a regular
income for a chosen period, depending upon your needs.
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Key Features: |
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A savings plan with flexibility of availing whole life insurance as an add-on benefit
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| • | Benefits including Wealth Creation, Insurance cover and Regular flow of income | ||||
| • | Flexibility to choose between Single or Regular premium payment | ||||
| • | Additional rider benefits at an affordable cost | ||||
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Option to receive the Basic Sum Assured at regular intervals over a stipulated time period of 5/10/15/20 years
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| • | Comprehensive risk coverage through 3 Riders: | ||||
| ◦ | SBI Life - Preferred Term Rider (UIN:111B014V02) | ||||
| ◦ | SBI Life - Accidental Death Benefit Rider (UIN: 111B015V02) | ||||
| ◦ | ’SBI Life - Accidental Total & Permanent Disability Benefit Rider (UIN: 111B016V02) | ||||
| • | Tax benefits as per prevailing norms under the Income Tax Act, 1961 | ||||
Call
/ SMS: 9440557921
OR Write: anand_prem_raj@yahoo.com
How does it work?
SBI Life - Shubh Nivesh has two options:
| • | Endowment Option: | |
| ▪ |
The base plan is a
traditional endowment plan with simple reversionary bonuses which accrue
till the end of the endowment term. The sum assured with all accrued
bonuses will be paid on survival till the end of the endowment term or
on earlier death.
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| • | Endowment with Whole Life Option: | |
| ▪ |
If you opt for a policy
term of 15 years or more you also have an option to extend your cover
for the whole life (or 100 years of age). The option gives you an
Endowment + Whole life plan whereby, in addition to the Endowment plan
benefits you are entitled to an additional amount equal to the basic sum
assured on survival till age 100 years or on earlier death during the
extension period.
| |
Call
/ SMS: 9440557921
OR Write: anand_prem_raj@yahoo.com
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