Investments for saving tax in India

Am writing this, while being bombarded by a few people about many queries related to the income tax, savings instruments etc.

We will discuss these following things in general:

1) Tax slabs for different types of individuals
2) Examples for people with different income levels - with or without savings.
3) Different investment avenues
4) My advise for different people to approach the tax savings


Tax slabs for different types of individuals -

Individuals (Actually Men & HUFs) -
First Rs 1,10,000/- is exempted
Next 1.10 L - 1.60L @ 10%
Next 1.60 L - 2.60L @ 20%
Next 2.60 L - 10.0L @ 30%
10.0 L onwards - @ 30% + surcharge @ 10% of total tax payable/paid.

Women -
First Rs 1,45,000/- is exempted
Next 1.45 L - 1.95L @ 10%
Next 1.95 L - 2.95L @ 20%
Next 2.95 L - 10.0L @ 30%
10.0 L onwards - @ 30% + surcharge @ 10% of total tax payable/paid.

Sr. Citizens -
First Rs 1,95,000/- is exempted
Next 1.95 L - 2.45L @ 10%
Next 2.45 L - 3.45L @ 20%
Next 3.45 L - 10.0L @ 30%
10.0 L onwards - @ 30% + surcharge @ 10% of total tax payable/paid.


Examples for people with different income levels - with or without savings :

Don't have energy left to write about these, so am pointing you to some old examples.
These examples are for last years tax slabs, but I think you would generally get an idea.


Different investment avenues for saving tax:

There are many different avenues which an individual can access for tax savings.
Here am primarily talking about tax saving instruments only,' ocs in my view,
somebody who does the tax saving part of the salary/income diligently, would certainly
become a prudent investor pretty soon.

PPF - Public provident Fund. Minimum lock in period is 3 years and total tenure for a PPF account is 15 yrs. Can be opened in SBI or I think some other nationalized banks and also Post Offices. I have mine in Post Office. but do remember, if you don't deposit anything for a whole year, they deduct Rs 100/- from the account. I did pay the penalty a couple of times in last few years.

NSC - National Savings Certificate. It is a fixed 6 yr savings certificate (i.e., lock in period here is 6 yrs ) and it generates an interest income of 8% compounded half yearly. e.g., a sum of Rs 10,000/- invested today would become Rs 16,010/- after 6 years.

LIC - Am not saying insurance as such, 'cos LIC in general is an investment avenue in itself, and there are many plans which nobody else offers. Well, LIC has a plethora of insurance cum investment plans for individuals, couples ,kids for all different ages. Generally, almost all of these insurance plans ar for 15-20-25 years, so these are like real long term investments. The plan should be well chosen as per the age, life stage of an individual, and not because an agent is pushing you.
And I must say, LIC has some very good plans for Indian customers. And the huge advantage when somebody purchases an LIC plan is of credibility that LIC has been in India since ages and that it has been giving money to people for years.

ULIPs ( Unit Linked Insurance Plans) - These are pseudo insurance plans floated by all the insurance companies including LIC these days and the insurance companies are in the market with big gums promoting all the different ULIP plans with huge sales and marketing schemes, advertisement propaganda. These insurance plans invest part of your premium in the stock market either under some existing plans or with new schemes in the stock market/debt market. Don't ask me about debt market right now, I ll explain another day may be. but primarily, ULIP plans cut the mortality charges ( money required for the insurance company to insure an individual for the specified sum assured) and also deduct admin charges, initial charges, yearly charges, stationary charges, abc charges, def charges, ..., xyz charges, list goes on, and I think they still don't disclose all of them.

ELSS( Equity Linked Saving Schemes) - These are purely investment instrument, whereby all your money is invested in the tax saving mutual funds.I hope nobody is asking, what is a mutual fund. So, different Fund houses, like SBI, HDFC, Reliance, Fidelity, Sundaram, etc have their own tax saving plans. Each plan has a different motive. Invest in whichever suits you, and yes, if you were thinking about it, the lock in here is 3 yrs. I guess, its the minimum in almost all of the tax saving instruments I have discussed above.

For layman, a mutual fund is a group of people, pooling in money to invest in the stock market to generate better returns, where in that pooled money is managed by professionals.
In mutual funds, there are a few options, which are initially confusing for people. The investment options are
1) GROWTH - the money grows with time and investor can redeem whenever they want.
2) DIVIDEND - the money grows and the fund house declares dividend ( you can say the profit of the money invested) and pays it
to the investors. The declaration is on the fund house discretion.
3) DIVIDEND RE-INVESTMENT - the money grows and the fund house declares dividend ( you can say the profit of the money invested) and
invests the money back into the mutual fund on behalf of investor.

My 2 annas, never choose the 3rd option(Dividend Re-investment).
If you want the profit to be returned to you periodically, choose 2nd(Dividend) option, that is fund house discretion, when they declare the dividend.
Else if you want to keep the option with yourself, choose the 1st (Growth) option. My recommendation would be to go for GROWTH option generally.


My advise :

People who have just started their carrier, i.e., in 20+ age before 30 yrs of age - should primarily invest all their investible surplus in the Mutual Funds. So for tax saving, they should invest all of the amount left after EPF (Employee Provident Fund) in these ELSS funds.

My suggestion is to choose between the following schemes to start with :
1) SBI Magnum Tax Gain Scheme 93 - Growth
Fund start date : Mar 1993
Return since start date - 18 % p.a. [Compounded annual growth rate, CAGR, you would read many times in many articles]
Return for last 3 years - 65 % p.a.

2) HDFC TaxSaver Growth - Growth
Fund start date : 1996
Return since start date - 31 % p.a.
Return for last 3 years - 49 % p.a.

3) Birla SunLife Tax Relief 96 - Growth
Fund start date : 1996
Return since start date - 35 % p.a.
Return for last 3 years - 48 % p.a.

4) HDFC Long Term Advantage - Growth
Fund start date : 2000
Return since start date - 38 % p.a.
Return for last 3 years - 43 % p.a.

All the above mentioned schemes are open ended tax saving schemes, and so you can invest in any of these any day of the year.

With, time and different life stages, people should start purchasing the term insurance policies, start investing in money back and with profit plans from LIC. I guess, I ll talk about them some other day, and this much is enough for today.

Please feel free to provide any feedback, and I shall update it with your suggestions. Or may be to know more about anything I have mentioned as a passing reference, drop in a note.


Glossary of terms :

Previous Year - Is the year in which we earned the money
Assessment Year - Is the year in which we are filing the tax return for the money earned
in the previous year.
Financial Year - Is the same as the previous year.

{ e.g., when we file return in May-June 2008, the A.Y is 2008-09 and the P.Y or F.Y is 2007-08 }

HUF - Hindu undivided Family
CAGR - Compounded annual growth rate

Visiting Sahitya Akademi and SAARC Textiles Exhibition over the weekend

This weekend was actually very eventful. We had already learnt that this saturday was the last day of the Sahitya Akademi books exhibition (cum sale) at Rabindra Bhawan, Ferozshah kotla Marg. It was a chilly morning and so it was a late rising day, still we got the best of it and were there around noon, 12:15 pm or so. I had already prepared a list of all the books which I felt good by names or which were award winners. Shikha spent good hour and half selecting books while I kept asking the fellow about the books in list. he was amused to see somebody with list and asking for books like "Cat on the Houseboat", "Bacchhon ne pakda chor", etc. Few of them were out of print. We got hold of more than two dozen books and the fella gave us some extra discount. So happily, at noon when Nanna said she is very hungry, we moved out of the exhibition area, but it was a good visit to that place. In general, they have a permanent sales outlet for the Sahitya Akademi books all year round over there on the first floor.
We definitely thought, we shall come back to this place and explore it more some other time.

Next, on Sunday, we casually went to Pragati Maidan, to see some Inside Outside Mega Show. As per the title, we know, it was a show about home furnishings, interior decorations, etc. but, we had some time in our hand, and what better place then Pragati maidan to spend it.
But, there was a surprise. Some SAARC Textile exhibition was going on there, we went inside strolling and started taking looks at the stalls. There were lots of fine rugs ( read expensive) from Afganistan and they were really good. Fantastic hand work, wall hangings, paintings from Bhutan and Nepal and shawls also were good. Some good soft toys from Sri lanka also. Nanna was also enjoying there, looking at things, while I spent time talking to people from Nepal, Bhutan, SriLanka about the things they have brought here and how has been there experience.
They were happy to be here. But, by the density of visitors on a warm Sunday afternoon,
it felt like, we need more promotion for SAARC exhibition like things.
But where did we spend the most time was Pakistan. The stalls from Pakistan had good stuff for the better half's. And so, there we spent two grand for two suit lengths for my better half. And I was happy to see her happy like that. We also saw a couple of people bargaining there like we usually do in Palika or Sarojini Nagar, and the exhibitor's looked very frustated by that. While talking to them , they mentioned, why some people would say we will only give Rs 40 for something of Rs 200. That is Delhi special I guess.
The IO Mega show, for which we went there, was kind of useless for us, so we spent not more than 5 min there. All in all, ITPO and Pragati Maidan are fantastic places to be.
Also we have the Auto Fair in Jan and World Book Fair in Feb lined up ahead.

Visit to GOONJ office

Well, its been many months, since I had been thinking of going to the Goonj office in Sarita Vihar, Delhi and so today it was
It was a perfect eye opener, the way they have been functioning and are managing the staff of more than 40 people and the values and behavior they have inculcated in them is extra-ordinary. It made me think, about the corporate trainings we go through time to time, to generate the motivation and belongingness feeling. I could feel that belongingness and motivation in the people working over there in the half hour or so, I spent over there. The guy Imran, who had shown us the work area primarily, was working overtime and that too on his own zeal to work rather than the pressure to show something. And I think the responsibility and authority he had was the primary motivations plus may be working with Anshu Gupta or being able to work at the grass root level and see the beneficiaries in front of your eyes and see and make the whole channel working in front of you in unison for this to happen are also the reasons. He is from Kashi. I was trying to understand the reason he chose this as his primary full time vocation but still am not fully satisfied.
But along with them, I intend to understand their modus operandi of choosing the local NGOs and sending the truck load full of material to them, then to another one, then look forward for reviews of their work. Hope am not being cynical, but still its a mammoth task to do. They have grown and are now sending a truck load full of material almost every 4-5 days, that makes it approx 90-100 truck loads in an year. I wish to be associated and be visiting villages and see/meet the beneficiaries in future.

And I must say, in their own manner, Goonj is working in the most professional and organized manner that is possible and in the most dignified manner for all the employees there. They have slowly expanded the work areas while there office is still situated in Sarita Vihar for people to see who are visiting.

Hopefully, I shall be paying more visits to their office and would make these visits more worthwile for them in the coming times.

Earlier in my carrier, I was associated with "World Vision India" (PartnerID- 1020731) and was sending them regular monthly payments. But later, I felt a need to be associated directly and see whats happening or if its happening the right way or not and since have stopped those monthly contributions.
Later I was also associated with a small team working on the education for poor children in Ghaziabad and Noida, and that was the best grass root level work I had witnessed till date. Going in the slums or labour colonies, watching the kids study in the rugged platform or dingy abandoned building floors, but they definitely looked happy. And you know what, those slums or the make shift labour colony, whatever you say, would generally have a small jhuggi, which acted as a cinema hall, where some enterprising guy would show movies through VCR/VCD on a TV, and the people used to spend money on that. But when they were asked to shell out Rs 20/- only for their children education for a month, they had many problems & excuses. So, it was both, non-willingness and attitude problem I guess.

But I sincerely appreciate, what they were doing without any help, almost independently. They had hired teachers at some places, erected shelters for schools and at a couple of places in Noida, they were helping and working in unison with the Govt schools. I had also sent them monthly contributions. But later when I stopped, I guess a year ago, I am not doing anything at all, and thats pinching me. Am forgetting the name of this institution, shall post it when I recall.

Shifting back to Indirapuram

Last weekend, 25th March' 2007, we finally got to shift at our much liked location Media Times Appt, Indirapuram. This was after a break of almost 4 months. Earlier also, we were living in the same place on a 3rd floor appartment. Now, we are exactly below that appt, on the 2nd floor.
Shifting itself was almost hassle free, as we had called in for professional movers & packers. Still to unwind all, and settle your house in livily living condition took most of our week.
In the mean time, the new school also has started for our daughter, and she has started regularly going there, punctually at 9 AM. This also means that, now I am also punctual now as am also off and out to office at the same time as well.

As my wife mentions, after coming here, this is what I have been seeing, the same structure, it seems this is what we have in our fate for lifetime :-)
She says so, 'cos this is the same appt we came to start our lives together after we got married.
Well, whats in or whats not, is not in our hand. We shall keep on doing our work.

And now, after shifting house, we have still to do a few things to make it a complete home. She already has a complete list of things to be done at home.
While I parallely run with my own list, which primarily includes the financial targets over the next financial year. As, the new FY 2007-08 starts on 1st April, I want my planning to be in a better manner this time so as not to hurry things in the end.