Saturday, January 8, 2011


Jan-Mar months are those in which very rampant tax planning takes place, especially among the salaried class and i'm no different. I have used up all sections available for tax saving except for the new section ( 80 CCF) introduced in last budget - Tax free investment upto 20,000 made in Infrastructure Bonds.In the past i have shown least interest towards dept instruments and all my investments are in Equity instruments.Thought of checking infra-bond's usability for tax planning and hence this post.

On a random check one the net came across the following deposit open
IFCI 8% pa 5 years lock-in period (opion2)

Some similar funds
L&T infra 7.5% 5 years lock-in period ( scheme closed for investment now)

PFC & IDFC are will open for subscription in the later part of January

At a first look these interest rates ie) around 8% looks minuscule in comparison with inflation rate of 5-6% and food inflation of 15%. But we need to take the income tax saving also into consideration.Following illustration holds good only for a individual falling under 30% tax bracket .

Investment : Rs20,000
Repayment : Rs29,386 ( at the rate of 8% the end of 5 years)

Incase if you dont make this investment , you need to pay a tax of Rs 6180 on Rs20,000. So the picture changes considering the tax saved as follows

Effective Investment : Rs13,820
Repayment : Rs29,386
Effective interest rate : 16.29% ( after considering tax savings )

The interest payment at the end of 5 years is taxable at the hands of the receiver.

Effective Investment : Rs13,820
Repayment : Rs29,386 - 9,386 * (30.3/1000) = Rs 26486
Effective interest rate : 13.89% ( after considering tax savings & tax payment on interest)

Risk free interest rate of 14-16% that too from a PSU is a compelling argument.

Some more advantages :

1. These FDs are listed and can be hold in demat form . No more hassles of maintaining all documents
2. TDS is done only when interest paid exceeds Rs 10,000.In this case its Rs9,386.
3. As there is no other options under Sec80CCF there is no comparison possible.

Saturday, January 1, 2011

NewYear Resolution

       Right from the days i remember i had the practice of taking some resolution every year .Though i had very good experience in taking resolution ,my track record of following the resolution was abysmally low. Normally it wont last till Pongal (Jan 15). Last year i was so desperate to stop this losing streak that i decided to take a newyear resolution which i would follow at any cause. After careful thought i decided on the following resolution
    Hence forth dont take any NewYear Resolution
Awesome isn't it .I felt invincible as there was no chance of failing to following this. I followed it will due diligence till this year (?!?!?) .So i spared myself on tedious process of selecting which resolution to take this year.

    But suddenly i came across a blog this morning expressing the importance of financial planning and particularly about insurance. This was one of the area i knew i was missing completely but didn't  work it out due to shear laziness. This read along with recent sudden hospitalization of few of my relatives made me to take the following resolutions today ..

   1. Take a term insurance as per rule of thumb ( 5 * Per Year Earning + Outstanding Loan)
   2. Mediclaim (additional to employer provided one) policy to cover all the family members

Oopps i broke the resolution i took last year :(