Blog 1 - IT Basics & Tax Instruments
Understanding Income Tax & various tax saving instruments
Tax! It's such a little word. But the best of us find it terrifying. Perhaps it's because we know so little about it. While we fulfil out tax obligation every year, we also owe it to ourselves to make the most of tax savings and create real wealth for the future.
Your tax bracket
It is but obvious that everyone who earns income has to pay tax, but how much – that is the questions that your tax bracket answers. Your 'taxable income' or 'Income after deduction' defines your tax bracket.
There are three categories of individual taxpayers:
- Individuals (below the age of 60 years) which includes residents as well as non-residents
- Resident Senior citizens (60 years and above but below 80 years of age)
- Resident Super senior citizens (above 80 years of age)
| Part I | Part II | Part III | |
|---|---|---|---|
| Citizens below 60 Yrs of Age | Senior Citizens (60 Yrs to 80 Yrs) | Senior Citizens (80 Yrs Old & Above |
Tax slabs |
| Income up to 2.5 Lakh | Income up to 3 Lakh | Income up to 5 Lakh | No Tax |
| Income from 2.5 Lakh to 5 Lakh | Income from 3 Lakh to 5 Lakh | -- | 5 per cent |
| Income from 5 Lakh to 10 Lakh | Income from 5 Lakh to 10 Lakh | Income from 5 Lakh to 10 Lakh | 20 per cent |
| Income more than 10 Lakh | Income more than 10 Lakh | Income more than 10 Lakh | 30 per cent |
- @4 per cent Health and Education Cess for individuals in the Tax
- Surcharge: 10 per cent of income tax, where total income exceeds Rs 50 lakh up to Rs 1 crore
- Surcharge: 15 per cent of income tax, where the total income exceeds Rs 1 crore to Rs 2 crore
- Surcharge : 25 per cent of income tax, where the total income exceeds Rs 2 crore to Rs 5 crore
- Surcharge : 37 per cent of income tax, where the total income exceeds Rs 5 crore
- Rebate under section 87A : The rebate is available to a resident individual if his total income does not exceed Rs 5 lakh. The amount of rebate shall be 100% of income tax or Rs 12,500 whichever is less
Source: HSBC Mutual Fund, Income Tax Department website
Note: Tax slabs are given for information purpose only it is further to be read with present laws as applicable in respective Financial Year (Assessment year) and read with any notification issued by Income tax authority from time to time. Investors should consult their tax consultant if in doubt about whether the product is suitable for them.
Determine your tax-saving instrument
While Section 80C of the Income Tax Act offers you a range of options for tax saving such as Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), National Pension Scheme (NPS) and National Savings Certificate (NSC) etc., your choice must depend on your income, risk appetite and return expectations.
Life insurance basically safeguards you against life risk or as per the insurance coverage in determined terms, except for Unit Linked Insurance Plans (ULIPs), which invest a part of the money into stock market and the other part is dedicated to insurance as per its feature, which may not provide opportunity to earn return. Fixed rate interest bearing instruments such as PPF and NSC are better suited for risk averse investors since they are backed by the government or by established financial institutions. However, they may or may not be able to beat inflation in the long term.
An Equity Linked Saving Scheme (ELSS), however, is an equity scheme, which invests in the stock market and may provides capital gains over the long term. ELSS is an open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit.
A mantra that precedes every investment plan – start early. Most investors start the hunt for tax saving instruments during the end of the financial year, when the fear of tax hits them. Investments in tax saving instruments demand attention and research. Starting early can help you make better choices, save tax more efficiently and capitalize on the investment returns.
Planning to reduce taxes is a critically important piece of the overall financial planning process. In order to minimize the anxiety associated with the time of tax filing and avoid surprises, adding a financial advisor could be beneficial.
An Investor Education & Awareness Initiative by HSBC Mutual Fund
Investors should deal only with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions”. Refer to www.assetmanagement.hsbc.co.in for details on completing a one-time KYC (Know Your Customer) process, change of details like address, phone number etc. and change of bank details, etc. For complaints redressal, either visit www.assetmanagement.hsbc.co.in or SEBI’s website www.scores.gov.in. Investors may refer to the section on ‘Investor Education’ on the website of Mutual Fund for the details on all ‘Investor Education and Awareness Initiatives’ undertaken by the HSBC Mutual Fund.
Disclaimer: This document has been prepared by HSBC Asset Management (India) Private Limited for information purposes only and should not be construed as i) an offer or recommendation to buy or sell securities referred to herein or any of the funds of HSBC Mutual Fund: or ii) an investment research or investment advice. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized. This document is intended only for those who access it from within India and approved for distribution in Indian jurisdiction only. Distribution of this document to anyone (including investors, prospective investors or distributors) who are located outside India or foreign nationals residing in India, is strictly prohibited.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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