Year Round. Guide. Planning

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1 BE UA R Y Year Round CH EM FEBR AR NOV JANUARY M R D E EC ER MB NE JULY AUG E E PT ER MB MA Y Guide JU OC TOBER APRIL Planning S US T

2 Wondering how to save taxes? #AskWhatELSS Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

3 Strategies for effective tax planning You have worked hard to earn your money and in turn, you want to see as much of it as possible to work for you. Tax planning allows you to identify tax-saving opportunities and build a tax-efficient solution centred around your financial priorities. By structuring the right mix of investments for your portfolio, you may be able to lower your tax outgo and help ensure you receive optimal returns. Moreover, building and preserving your wealth requires a detailed look at both your overall financial picture and tax implications as well. The first step towards developing a tax-effective financial plan is to know how much tax you are paying currently and how much tax you are likely to pay on each type of income you may receive in future. Know your income tax slabs For Individuals below 60 years of age For resident Senior Citizens (Age 60 years and above but less than 80 years) For resident Senior Citizens (Age 80 years or more) Income Level* Tax Rate Income Level* Tax Rate Income Level* Tax Rate `2.5 lakh Nil Up to `3 lakh Nil Up to `5 lakh Nil `2.5 `5 lakh 10% `3 `5 lakh 10% `5 `10 lakh 20% `5 `10 lakh 20% `5 `10 lakh 20% Above `10 lakh 30% Source: As per Finance Act 2016; 15 per cent surcharge of the Income Tax, where Net Income is more than ` 1crore; In a case where surcharge is levied, Education Cess (EC) of 2 per cent and Secondary and Higher Education * Increase in the rebate from Tax under section 87A for resident individuals with total income not exceeding Rs 5 lakh from existing Rs 2000 to Rs 5000 This guide on Tax Planning will help you choose your investments smartly to pursue your life goals with tax efficiency built into them. Happy Tax Planning!

4 Nuts and bolts of tax savings Seasoned taxpayers know the importance of having an upper hand over their taxes. Any change in tax laws, or rates/slabs has an impact (positive or negative) not only on one s net income but also on overall finances. Let s look at the highlights of Budget 2016 (now Finance Act 2016) which have left an impact on the way you will need to plan your taxes. Although the tax slabs have been left untouched, there have been a few changes to the deductions that one can claim. Their efficient utilisation may prove to be advantageous to one s long-term finances. (See: Highlights of Finance Act 2016 Highlights of Finance Act 2016 (Key Applicable Limits) Claim Limits (in `) Medical Insurance Premium 1 25,000 Medical Insurance premium (Additional deduction of `5,000 for senior citizens i.e. aged 60 and above) 1 30,000 Deduction on medical healthcare expenditure (For super senior citizens i.e. aged 80 and above) 1 30,000 Deduction for expenditure on account of specified diseases (For super senior citizens i.e. aged 80 and above) 2 80,000 Deduction for maintenance, treatment of disabled dependents 3 75,000 Contribution to Pension Fund or NPS 4 1,50,000 Additional deduction for investment in NPS 5 50,000 Source: Finance Act Section 80D; 2 Section 80DDB; 3 Section 80DD; 4 Section 80CCD (1) & Section 80CCC; 5 Section 80CCD (1B)

5 How much you can save Income Tax Section Section 80C Where to Invest EPF, PPF, Tuition Fees, Home loan principal, NSC, ELSS, Life Insurance Premium, 5-year FD, 5-year term deposit with post offices, ULIPs, Senior Citizen s Savings Scheme, Sukanya Samridhi Scheme, NPS Maximum Investment `1.5 lakh How Much Tax Can You Save? Up to `46,350** Section 80CCC Contribution to certain pension funds `1.5 lakh including Section 80C contributions Section 80D* Section 80CCD Section 80CCG Contribution to medical insurance Contribution to National Pension System (NPS) Rajiv Gandhi Equity Savings Scheme (RGESS) Self, spouse, and dependant children: `25,000; Parents: Additional deduction up to `25,000; Super Senior citizen: Additional deduction of `30,000 is allowed Deduction of up to `50,000. This is over and above the `1.5 lakh deduction that can be claimed under Section 80C Deduction is available on 50% of the amount invested or `25,000, whichever is less. Benefits can be used for 3 successive years, over and above `1.5 lakh under 80C Up to `16,995** saved on contribution of `55,000* `15,450** `7,725** (calculated on Rs.25,000) * Inclusive of `30,000 towards health insurance of super senior citizens; **Applicable at 30% tax bracket, and considering Education Cess (EC) of 2% and Secondary and Higher Education Cess (SHEC) of 1%

6 Making the right choice One can choose from a long list of investments eligible for Section 80C benefits. Deductions like Employee Provident Fund (EPF) may be automatically availed due to mandatory contribution from salary, others like tuition fee for child s education may not be available with all. Employee Provident Fund: This is your contribution towards provident fund that gets deducted from your salary. Contributions towards Voluntary Provident Fund can also be considered for deduction. The lower of Employer s contribution in excess of 12% of the salary of the employee or Rs 1,50,000 pa will be subject to tax. Public Provident Fund: This investment has one of the longest tenures of 15 years with further extension of 5 years allowed each time. It also has the flexibility of partial withdrawal before maturity. The interest rates are linked to that of government securities and fixed for April-March every financial year. See How they stack up table for more details on comparison between key investments offering tax benefits. Tuition Fees: If you have paid tuition fees towards full-time education of your children, you can claim deduction for upto two children. Home loan principal repayment: Repayment of principal amount towards a housing loan can be considered. National Savings Certificate (NSC): Investments in NSC can be claimed as deduction. Equity Linked Savings Scheme (ELSS):This has one of the lowest lock-in period of 3 years for investments allowed in this section. In case of a monthly SIP, each installment has a 3-year lock-in. National Pension System (NPS): Investments of up to `1.5 lakh can be claimed for tax deduction in a financial year. Besides, an additional deduction of up to `50,000 can be claimed under Section 80CCD(1B). 40% of the amount withdrawn from NPS on retirement will be tax exempt.

7 Life Insurance Premium: You can claim this deduction when you pay the premium for life insurance of yourself, your spouse or your children. Bank Fixed Deposits: Fixed deposits of 5 years or more with a scheduled bank are eligible for deduction. Unit Linked Insurance Plans (ULIPs): ULIPs are market linked investments offered by insurance companies; lock-in period of 5 years and gains post lockin are tax free. Senior Citizen Savings Scheme (SCSS): Investments in SCSS can also be claimed as deduction. Rajiv Gandhi Equity Savings Scheme(RGESS): Tax deductions of up to 50 per cent can be claimed for a maximum investment of `50,000 by a new retail investor (with no demat account), whose gross income for the particular financial year is equal to or less than `12 lakh. How they stack up* Product PPF Tenure (years) Minimum Investment 15; can be extended in tranches of 5 years Current Returns `500 Annually@ 8% Tax free NSC 5 `100 Half 8% Bank FD Above 5 `1, % with quarterly compounding ULIPs 5 (lock-in) `10,000 Market linked ELSS 3 (lock-in) `500 Market linked RGESS 3; fixed lock-in for first year and flexible lock-in for 2 years Tax Implication on returns Interest accrued is taxed every year as per slab Same as NSC `1,000 Market linked Tax free * Subject to further conditions as specified in respective sections. Source for Interest Rates: for NSC and PPF; FD: State Bank of India Capital gains post lock-in are tax free Capital gains are tax free

8 The elss edge It is well documented that equity as an asset class has the potential to earn inflation beating returns. So, when it comes to tax savings, one should ideally make the most of using the tax deductions available towards equity based investments. This is proved by the CRISIL-AMFI Equity Fund Performance Index (an index representing performance of equity funds) which returned almost 13 per cent annualised gains over the 10-year period ended September 30, ELSS, RGESS, NPS and ULIPs are four investments which invest in equity. Within mutual funds, Equity-Linked Savings Scheme (ELSS) qualify for tax deductions under Section 80C of the Income Tax Act. ELSS is like any other diversified equity mutual fund, which invests at least 65 per cent of its assets

9 in equity and equity-related products to qualify for tax deductions. ELSS has one of the shortest lock-in periods of three years. It also comes with nil capital gains tax after the lock-in period as per current tax laws. Such qualities make ELSS ideal for not just every taxpayer but also for tax savers seeking to build wealth from equity investments. There are several other benefits of investing in ELSS: Diversification: Diversification is a simple philosophy that rests on the fact that all sectors/stocks don t do well simultaneously. As these schemes are similar to diversified equity funds, it is suitable for investors looking to save taxes and also invest in equities. Lock-in: ELSS has the shortest lock-in of three years among investments under Section 80C. Though it is the most liquid among tax-saving options, please note that equity as an asset class should be held for at least 5 years to ride out any volatility. Flexibility and convenience: Invest with as low as `500 per month through SIPs, which help you stagger your investments. Most importantly, you can invest small sums throughout the year instead of investing large sums at one go. Likewise, you need not redeem all the units after the lock-in, you can cash in as little as you need and let the rest stay invested. Tax-free returns: Currently investments in ELSS have dual tax benefits. First, investments of up to `1.5 lakh in a financial year qualify for tax deductions under Section 80C of the Income Tax Act. Second, after the mandatory three year lock-in, the gains from the investments are tax-free. Professional management: The beauty of investing in ELSS is that the job of making investments on your behalf in equities is left with experts who optimise returns. Transparent: All information like NAV, AUM, expenses, fund manager/ portfolio details are available on the AMC s website.

10 Mutual funds to Build your retirement corpus There is a certain category of mutual funds in the pension space which helps in retirement planning. These pension funds * are government notified and investments in these funds qualify for tax deductions under Section 80C. Some of these funds have a 3-5 year lock-in period and typically invest upto 40 per cent of their assets into equities while debt allocation (allowed upto 100 per cent) is aimed at providing stability to the portfolio. The fund works towards capital appreciation by maintaining a diversified portfolio of equities and seeks to earn regular income from the fixed income component. This type of fund is suitable for investors who want to build or enhance the value of their retirement corpus. The fund also charges an exit load for any redemptions till about years of age. The idea is to discourage any redemption till retirement. On reaching 58 or 60 years of age, the investor can start receiving the investment payout. The payouts could be lump sum or at a pre-decided regular frequency as a systematic withdrawal plan (SWP) to suit investor needs. ** *Pension fund set up by any Mutual Fund referred to in clause (23D) of section 10 or by the Administrator or the specified company, as the Central Government may, by notification in the Official Gazette, specify in this behalf **Exact product specifications/features may vary across AMCs. Please check scheme information document (SID) for exact details. Disclaimer Information contained in this booklet is not a complete representation of every material fact and is for informational purposes only. It cannot be used or considered to be an offer to sell or buy units of Franklin Templeton Mutual Fund schemes. Regulatory/ taxation details mentioned in the presentation are provided on a best effort basis and are as per the existing laws and subject to change from time to time. The recipient is advised to consult his/her advisor/ tax consultant prior to arriving at any investment decision. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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