CMA. Subhash Kumar Jha
After the
additional Rs. 20000 investment in Infrastructure Bonds are allowed as deduction
under Section 80C, above the cap of Rs. 100,000/-, suddenly the tax payers see it
as a brighter option to save more tax. But, on careful
& tactical analysis one can figure out, whether it is a healthy investment option
for them or not.
Infra Bonds are Government Bonds
& are available in the debt market. It carries
highest security and is invested for long term. It is like
a debt instrument which pays a periodic/fixed interest which normally doesnt change
very often.
Before selecting this as a tax
saving instrument, one must do some home work calculations.
One must consider any tax saving investments on few parameters, such as :
-
Tax saving
-
Lock in period
for the invested funds
-
Returns from
the investment
-
Lost opportunity
to earn, if invested in some other option.
Tax saving
Tax saving will be different
for different slab group taxpayers.
For 10 % Group
: Saving is Rs 2,000/- (20000*10%)
For 20 % Group
: Saving is Rs 4,000/- (20000*20%)
For 30 % Group
: Saving is Rs 6,000/- (20000*30%)
Lock in period for the invested funds
Normally these
instruments comes with 5-10 year lock-in period. For our calculation let us suppose
it @ 5 years.
Returns from the investment
Normally these instruments fetch
7-9 % per annum. Let us suppose it @ 8 %.
So with an annual compounding factor an investment of Rs. 20,000/- would return
an interest of Rs. 9,387/- over its lock-in period. So total returns works out to
:
|
Tax
Slab Group |
Net
Return in 5 years (including tax saved in year 1) |
Net
Average Return |
|
For
10 % Group
:
|
2000
+ 9387 = Rs. 11387 |
11.4 % |
|
For
20 % Group
:
|
4000 + 9387 = Rs. 13387 |
13.4 % |
|
For
30 % Group
:
|
6000
+ 9387 = Rs. 15387 |
15.4 % |
Lost opportunity to earn, if invested in some other option.
Instead of
the above if the same amount has been put in an ELSS scheme, even the most conservative
fund will give a return of 12-18 %. Let us suppose it @ 15 %. First of all, one
must understand, that if we are not going for investment in full 20,000/-. They
will have lesser amount to invest in ELSS :
|
Tax
Slab Group |
Amount
left after Tax paid in year 1 |
Net
Return in 5 years (after deducting tax paid in year 1) |
Net
Average Return |
|
10
% |
18000/- |
16204/- |
@
18.0% |
|
20
% |
16000/- |
12182/- |
@
15.2% |
|
30
% |
14000/- |
6956/- |
@
11.7% |
So now, if we simply compare
the two scenario i.e Net return if invested in tax saver infrastructure bonds vis--vis
Net return if not opted for this option & instead opted for some other safer scheme.
|
Tax
Slab Group |
Net
average Return (Infra Bonds) |
Net
average Return (Other funds) |
Conclusion
(Better
Option) |
|
10
% |
11.4
% |
18.0% |
Other
Funds |
|
20
% |
13.4
% |
15.2% |
Other
Funds |
|
30
% |
15.4
% |
11.7% |
Infra
Bonds |
Bottomline.
If you are in the highest tax
bracket (30%) then these infrastructure bonds are definitely a worthy decision.
If you are in the medium tax bracket (20%) then you should not go for this long
term option. If its available with a lesser 2-3 year lock-in, they one may think
of opting for this.
If you are in the lowest tax
bracket (10%) then its a BIG NO
CAclubindia
