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 Wondering how to
save taxes?

#AskWhatELSS

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Strategies for
effective tax
planning
Y ou 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 resident Senior Citizens For resident Senior
For Individuals below (Age 60 years and above Citizens (Age 80 years
60 years of age but less than 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%
Above `10 lakh 30% Above `10 lakh 30%
Source: As amended by Finance Act 2015; 12 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
Cess (SHEC) of 1 per cent will be levied on the amount of income tax plus surcharge.

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!
Nuts and bolts of
tax savings
S easoned 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 changes
announced in Budget 2015, 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:
Changes in Budget 2015).

Changes in Budget 2015

Earlier Now
Claim (in `) (in `)
Medical Insurance Premium1 15,000 25,000
Medical Insurance premium (Additional deduction of 20,000 30,000
`5,000 for senior citizens i.e. aged 60 and above) 1
Deduction on medical healthcare expenditure (For super 30,000
senior citizens i.e. aged 80 and above) 1
Deduction for expenditure on account of specified diseases 60,000 80,000
(For super senior citizens i.e. aged 80 and above) 2
Deduction for maintenance, treatment of disabled dependents3 50,000 75,000
Contribution to Pension Fund or NPS 4
1,00,000 1,50,000
Additional deduction for investment in NPS 5
50,000
Source: Finance Bill 2015

Section 80D; 2Section 80DDB; 3Section 80DD; 4Section 80CCD (1) & Section 80CCC; 5Section 80CCD (1B)
1
How much you can save
Income Tax Where to Invest Maximum Investment How Much Tax
Section Can You Save?
EPF, PPF, Tuition Fees,
Home loan principal,
NSC, ELSS, Life
Insurance Premium,
Section 80C 5-year FD, 5-year
`1.5 lakh
term deposit with post
offices, ULIPs, Senior
Up to `46,350**
Citizen’s Savings
Scheme, Sukanya
Samridhi Scheme, NPS

`1.5 lakh including

Section Contribution to certain
Section 80C
80CCC pension funds
contributions

Self, spouse, and

dependant children:
`25,000; Parents: Up to `16,995**
Section Contribution to medical Additional deduction saved on
80D* insurance up to `25,000; contribution of
Super Senior citizen: `55,000*
Additional deduction of
`30,000 is allowed
Deduction of up to
`50,000. This is over
Section Contribution to National and above the `1.5 lakh
`15,450**
80CCD Pension System (NPS) deduction that can be
claimed under Section
80C
Deduction is available
on 50% of the amount
invested or `25,000,
Rajiv Gandhi Equity
Section whichever is less. `7,725 including
Savings Scheme
80CCG Benefits can be used 3% Cess
(RGESS)
for 3 successive years,
over and above `1.5
lakh under 80C
* 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%
Making
the right
choice
O ne 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.

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 for both the 5 and 10-year options.

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).
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 lock-in 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*

Minimum Current Tax Implication
Product Tenure (years) Investment Returns on returns
15; can be extended
PPF `500 Annually@ 8.7% Tax free
in tranches of 5 years
Half yearly @ Interest accrued
NSC 5 or 10 `100 8.5% for 5 yrs; is taxed every
8.8% for 10 yrs year as per slab
7% with
Bank FD Above 5 `1,000 quarterly Same as NSC
compounding
Capital gains
ULIPs 5 (lock-in) `10,000 Market linked post lock-in are
tax free
Capital gains are
ELSS 3 (lock-in) `500 Market linked
tax free
3; fixed lock-in for
RGESS first year and flexible `1,000 Market linked Tax free
lock-in for 2 years
* Subject to further conditions as specified in respective sections. Source: Ministry of Finance notification for PPF
dated April 21, 2015 and for NSC, Ministry of Finance notification dated March 31, 2015; For FD: State Bank of India
The elss edge
I t 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 15 per cent annualised gains over the 10-year
period ended September 30, 2015. 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
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.
Mutual
funds
to Build
your
retirement
corpus
T here 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 58-60 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.