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- 1. Submitted By: Nirmala Sahu Krati Garg Haaris Aalamgeer Ashraf Mahmood Submitted To: Mrs. Anju Anand
- 2. Introduction All about a conservative investor What are debt instruments? Various debt instruments Tax saving debt instruments Tax saving debt instruments for a conservative investor Case Study Calculation of tax Conclusion
- 3. Introduction • Time and again, business newspapers have talked about tax-saving instrument. • This undoubtedly implies the term ‘’tax-saving instrument’’ to be a very significant one. • And on a factual basis, rich people have to pay more as they earn more, the not-so-rich ones, at the same time, have to pay less as they earn less, comparatively, and the poor ones, on the other hand, are helped by the government as they have no fixed source of income, in the form of subsidies, thereby solving the most insolvable task of socio- economic disparity within a nation.
- 4. All about a conservative investor Who is conservative investor? Conservative investor have risk tolerance ranging from low to moderate. Those who have low risk tolerance are often extremely uncomfortably with the stock market and wish to avoid it entirely. What does he require mostly? Capital preservation.
- 5. • Debt based instrument usually have the nature to guarantee the principal amount of the investor and hence come with lower investment risk in comparison to equity instruments. • Debt instrument should be part of every investor’s investment portfolio. • Although debt instrument are considered a relatively safe investment option, there is a hierarchy of risk even among these. What are debt instrument?
- 6. Various debt instruments Deposit schemes Debt mutual funds Savings schemes • Bank fixed deposits • Post office deposits • Company deposits • The invest in government bonds, treasury bills, corporate fixed deposits, bank’s bonds, corporate NCDs, etc. • Public provident fund • National savings certificate • Senior citizens saving scheme But not all these debt instruments are tax saving in nature.
- 7. What? TAX SAVING DEBT INTRUMENTS These are certain debt instruments that have specific tax exemptions under Section 80C of the Income Tax Act, 1961. Why? So that, one could save some portion of his/her taxable income from getting washed off, thereby, making it a totally apt investment option for a conservative investor .
- 8. Tax Saving Debt Instruments For a Conservative Investor Schemes Current Returns Tenure Min – Max Investment Premature Withdrawal Tax Treatment Public Provident Fund 7.6% p.a. 15 years^ Rs 500 - Rs 1.5 lakh Yes* Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961 National Savings Certificate 7.6% p.a. for 5 yrs. deposit ( compounded half- yearly) 5 years Rs 100 - No upper Limit No Senior Citizens Savings Schemes 8.3% p.a. (payable quarterly) 5 years Rs 1,000 - Rs 15 lakh Yes* Tax Saving Bank Deposits Varies from bank-to- bank For SBI: 6.75% p.a. 5 years Rs 100 - Rs 1.5 lakh No Interest accrued is taxed every year as per one’s income-tax slab National Pension Scheme Depends on the scheme chosen Up to the age 60 years Rs 6000 - Rs 1.5 lakhs Yes* Principle and interest amount are exempted from tax *Partial withdrawals allowed subject to conditions ^can be extended in tranches of 5 years All interest rates are for FY 2018-19
- 9. Age 55 years Source of income Salary Risk Conservative Risk Taker Salary Rs. 2,00,000 per month He comes under income tax bracket of 30% .
- 10. Case study contd. He invests Rs 1.5 Lakhs in PPF , which is exempted from tax under Section 80C He invests Rs. 25,000 in Medical Insurance Premium which is exempted from tax under Section 80D He invests Rs. 1.5 Lakhs in National pension scheme which is exempted from tax under Section 80CCD Net income chargeable to tax = 24 Lakhs – (1.5 + 1.5 + 25000) Lakhs = 20.75 Lakhs
- 11. Income Tax Slabs Tax Rates Tax Liability for FY 2018- 19 (in Rs.) Up to Rs. 2.5 lakhs NIL 0 Between 2.5 Lakhs to 5 Lakhs 5% 12500 Between 5 Lakhs to 10 Lakhs 20% 1,00,000 Between 10 Lakhs to 24 Lakhs 30% 4,20,000 Tax to be Paid Rs. 5,32,500 Income Tax Slabs Tax Rates Tax Liability for FY 2018- 19 (in Rs.) Up to Rs. 2.5 lakhs NIL 0 Between 2.5 Lakhs to 5 Lakhs 5% 12500 Between 5 Lakhs to 10 Lakhs 20% 1,00,000 Between 10 Lakhs to 20.75 Lakhs 30% 3,22,500 Tax to be Paid Rs. 4,35,000 Tax calculation before Deductions Tax calculation after Deductions
- 12. As we saw in the Case Study, Mr. Aggarwal is liable for tax payment of 4,35,000 Lakh p.a. Without deductions , this tax liability would have been Rs. 5,32,500 p.a. So, he saves a tax of Rs.9,75,000 p.a. (5,32,500-4,35,000) Hence, the three tax saving options opted are PPF, NPS, and Medical Insurance Premium under Section 80C, Section 80CCD and Section 80D respectively. CONCLUSION