Product
Review:
Maximise
Your Tax Rebate on Equity Investments
By
Rana S.
Currently,
the equity market is on fire in India raising the adrenalin levels
of many people. For many others, the truth seems to be slowly
dawning that equity markets are, after all, supposed to move in
cycles and that over the long run its direction would actually
be only upwards.
Equity
investment with tax benefits will, therefore, be music to many
ears. And, that too if it is for substantial investments every
year.
We
are not talking about an investment of Rs 10,000 per annum in
ELSS or Tax Plans as they are called. The eligible investments
we present here is Rs 70,000 per annum applicable to an approved
Pension Plan. However it will apply to eligible cases. Most
people are used to putting large sums in PPF to serve their long-range
goals. With interest rates plummeting PPF has lost its earlier
sheen. There is one product from the mutual fund stable, which
is relevant- Templeton India Pension Plan- that seeks to
create a corpus for your old age, much like PPF. You cannot exit
from this plan before you are 58 years old. Your money will be
managed in a balanced fund of debt and equity (up to a maximum
of 40% of the corpus) promising good growth potential. Past performance
points to a return of around 12% per annum but there should be
scope for much improvement.
It
may be uncomfortable for people to wait for very long period.
But those in their 50s and late forties can certainly look at
this option.
Details
of Tax Rebate:
Tax rebate on this investment is available for investments up
to Rs 70,000 per annum. Therefore, you can get a 20% tax rebate
if your gross total income is up to Rs 1,50,000 and at 15% on
your investment if your gross total income is above Rs 1,50,000
but does not exceed Rs 5,00,000. With Sec 88 rebates not being
available to persons above Rs 5 lacs of annual gross total income
any more, the merits of this option may get overlooked. However,
if long term investing for retirement is the purpose, tax rebate
may be irrelevant for a good avenue.
How It Works:
A minimum of Rs.10,000 cumulatively (either in lump sum or in
instalments of a minimum of Rs.500) anytime up to the age of 58
years has to be invested by any
resident individual up to the age of 58 years. There is no maximum
limit on investment. On attaining 58 years age, (subject to a
minimum lock-in period of 3 financial years)
investors can avail of any of the following options:
Pension
Option: Receive regular income till perpetuity while leaving
the accumulated investment in the Fund.
Lump
sum Option: Withdraw the full value (at no discount to NAV)
of your investment, which has accumulated at that point.
Combination
Option: Withdraw part of the accumulated investment as a lump
sum and continue to enjoy a regular income on the remaining investment
in Pension Plan.
Flexible
Option: Set a fixed amount per month for a certain period
or set the period for which you wish to receive a certain monthly
amount.