The document discusses tax planning strategies for FY 2017-18, emphasizing the importance of understanding income tax slabs and the potential tax-saving instruments under Section 80C, such as PPF, ELSS mutual funds, and life insurance. It explains the differences between market-linked and fixed-return investment options, advocating for asset allocation based on individual risk tolerance and life stage. The document concludes that disciplined investing and proper asset allocation can lead to wealth creation while optimizing tax benefits.

1. PPF
or
ELSS Mutual Funds
Where to invest for Tax Planning for FY 2017-18

2. How to save Tax for FY 2017-18?
Before Tax Planning it is important to know how much tax one need to pay on his income.
For that one need to know how much tax rate applicable to him.
Income Tax Slabs for FY 2017 - 18
General Public Senior Citizens Very Senior Citizens
Income Tax Slab Tax Income Tax Slab Tax Income Tax Slab Tax
Up to Rs.2.5 Lakhs Nil Up to Rs.3 Lakhs Nil Up to Rs.5 Lakhs Nil
Rs.2.5 - 5 lakhs 5% Rs.3 - 5 Lakhs 5% Rs.5 - 10 lakhs 20%
Rs.5 - 10 lakhs 20% Rs.5 - 10 lakhs 20% Above 10 Lakhs 30%
Above 10 Lakhs 30% Above 10 Lakhs 30%
# Education Cess of 3%
# Surcharge of 10% on Rs. 1 Crore plus income earners
# Tax Credit of Rs. 2,000 for income up to Rs. 5 lakhs u/s 87A (Only for this Financial Year)
# There are no separate slab for male & female

3. You can save your taxes by investing in Tax – saving instrument under Section 80C.
Section 80C
• Maximum amount you can invest under Section 80C is Rs.1,50,000/-. This
limit has increased from Previous Year ,then maximum investment allowed
was Rs.1,00,000/-. It is good news for all the tax payers as it means you can
save your taxes more than previous years.
• You have various investment options like Public Provident Fund (PPF), Tax
Saving Bank FD, National Savings Certificate (NSC), Life Insurance Policies,
ELSS Mutual Funds.
• Employee Provident fund (EPF) deducted every month from the Salary
shown as investment under this section.
• Other than investment options, even your expenses like Principal Payment of
your Home Loan, Children Tuition fees is allowable as deduction under this
section
We can divide investment options available under Section 80C into 2 categories
1. Investment Options with market linked returns
2. Investment Options with Fixed or Guaranteed Returns
Lets look at the chart

4. Snapshot of Investment Options available under Section 80 C
Schemes Type Interest Rate Term
Min-Max
Investment
Premature
Withdrawal
Returns on
Maturity
TAX Planning with Market-Linked Instruments
ELSS Funds Growth
Market Linked
Returns
Term : Ongoing
Lock-in-period : 3yrs
Rs. 500 -No Upper
Limit
N/A Tax Free
ULIPs Growth
Market Linked
Returns
Term : According to
Plan
Lock-in-period : 5yrs
Varies from Scheme
to scheme
Yes Varies
National Pension
System
Growth
Market Linked
Returns
30-35 years Rs.6,000
Yes, subject to
condition
Taxable
TAX Planning with Fixed / Assured Return Instrument
Public Provident Fund Recurring 7.9% p.a. 15yrs Rs.500 - Rs. 150,000
Yes, subject to
condition
Tax Free
NSC Certificate 5 yrs Deposit
7.9% (Half Yearly
Compounding)
5yrs
Rs.100 - Upper No
Limit
No Taxable
Bank Deposits
Fixed
Deposit
7% to 8.15% p.a. 5yrs No Upper limit No Taxable
Senior Citizen Savings
Scheme
Deposit
8.4% p.a. (Payable
Quarterly)
5yrs
Rs 1,000 - Rs.
15,00,000
Yes Taxable
Sukanya Samriddhi
Yojana
Recurring 8.4% p.a.
For girl child below
age of 10
Rs 1,000 - Rs.
1,50,000
Yes, subject to
condition
Tax Free
Insurance Plans Insurance
Sum Assured
(Insurance Cover)
5-40yrs
Premiums depends
on insurance cover
Varies Tax Free

5. While choosing one of these investment options for tax saving purpose, you need to
take one more thing into consideration. Are Maturity benefits from these investment
options also TAX Free?
Out of all the investment options available only EPF, PPF, Life Insurance Policies &
ELSS mutual funds will give you tax free returns at the time of maturity. EPF is
mandatorily deducted from the salary, & it is part of retirement benefits of a employee.
So here we will further analyze PPF, Life Insurance Policies, ELSS mutual funds to know
which investment option is better option.
Let’s look at the Life insurance policies. Many people buy life insurance policies
offering maturity benefits thinking it is offering triple benefits of tax saving, safety of
investment & covering life risk. But returns from these policies are usually low when
adjusted for inflation. Also these policies do not offer adequate risk cover.
One should not mix insurance with investments. Insurance policy should be taken
only for protection purpose. One must buy Term Insurance as this is purest form of
life insurance policy & provides high amount for risk coverage at a very low premium.
Now we left with 2 options, ELSS Mutual Funds & PPF. ELSS offers you market linked
returns, PPF gives you fixed guaranteed returns on your investments. So we compare
returns of BSE SENSEX with PPF returns from 1990. Let’s look at the below table.

6. BSE SENSEX vs PPF
It is assumed over here that at the start of each financial year i.e. in April Rs.70,000 has been
invested in both SENSEX & PPF. After looking at the table, we can conclude that BSE SENSEX out
performed PPF over each 15yr period starting from 1990. PPF was giving 12% interest rate from
1990 to 2000 but still it has given double digit returns over 2 periods only where as SENSEX deliver
double digit return over each period except one.
Obviously one would think it is better to invest in ELSS mutual funds than PPF when we are looking
to invest for the long term. But we think one should optimally utilize the options available for tax
saving & it is only possible by Asset Allocation.
Investment Period
Invested
Amount
BSE Sensex PPF
Value of
Investment
Rate of Return
Value of
Investment
Rate of
Return
APR 1990 – MAR 2005 1,050,000.00 2,641,185.56 10.86% 2,577,913.00 10.59%
APR 1991 - MAR 2006 1,050,000.00 3,712,958.30 14.66% 2,496,908.00 10.23%
APR 1992 – MAR 2007 1,050,000.00 3,343,974.49 13.50% 2,422,381.00 9.89%
APR 1993 - MAR 2008 1,050,000.00 4,033,910.17 15.57% 2,354,388.00 9.57%
APR 1994 - MAR 2009 1,050,000.00 2,300,669.06 9.30% 2,293,004.00 9.27%
APR 1995 - MAR 2010 1,050,000.00 3,908,282.79 15.22% 2,238,329.00 8.99%
APR 1996 – MAR 2011 1,050,000.00 3,956,900.49 15.36% 2,190,483.00 8.74%
APR 1997 - MAR 2012 1,050,000.00 3,265,347.14 13.23% 2,161,557.00 8.59%
APR 1998 - MAR 2013 1,050,000.00 3,214,620.57 13.06% 2,142,987.00 8.49%
APR 1999 - MAR 2014 1,050,000.00 3,512,419.67 14.04% 2,128,965.00 8.42%
APR 2000 - MAR 2015 1,050,000.00 3,973,638.10 15.40% 2,121,872.00 8.38%
APR 2001 - MAR 2016 1,050,000.00 3,265,670.17 13.24% 2,122,070.07 8.38%
APR 2002 - MAR 2017 1,050,000.00 3,361,151.04 13.56% 2,108,827.77 8.31%

7. What is Asset Allocation?
It is easy decision for salaried person to opt for ELSS mutual funds over PPF. Since he is
already covered by EPF for his retirement benefits. But if businessman opt for ELSS over
PPF, he is attracting unnecessary risk especially when he is not entitled for any retirement
benefits. In his case PPF would be more suitable investment option. So how to decide
which option one should choose?
Answer is Asset Allocation. It is investment strategy that helps to keep balance between
risk & return of asset classes. It refers to investing a certain percentage of your savings in
respective asset classes such as equity, debt, gold & real estate. Asset Allocation
percentage is determined by your risk taking capacity.
Your risk capacity is determined by 3 basic factors Age, Income & Time Horizon for
achieving financial goals. When you are young you can take higher risk & invest in riskier
assets like equity but as your age increases you become risk averse. An individual who has
high income & expect high growth in his income in the future, can tolerate higher risks.
But asset allocation is mainly determined on the basis of time horizon in which you wish
to accumulate for your financial goal. Longer your time horizon for the investment higher
the amount of risk you can afford to take.
On the basis of the age of tax payer & the time horizon one can give to grow his
investments, we design model asset allocation for tax payers. Look at the below table.

8. Model Asset Allocation for Tax Planning
Age EPF / PPF
Life Insurance
Premium ( Term
Plan)
ELSS Total
<30 37,500.00 25,000.00 87,500.00 150,000.00
30-40 43,750.00 25,000.00 81,250.00 150,000.00
41-50 56,250.00 25,000.00 68,750.00 150,000.00
51-60 93,750.00 25,000.00 31,250.00 150,000.00
It is assumed here that, individual has bought Term life insurance policy at very young age
& he will pay low premium on his policy throughout. If that individual would take Term
policy later in his life , he has to pay comparatively high premium. In that case he can adjust
his allocation between EPF/ PPF & ELSS according to his risk taking capacity.
So this is ideal asset allocation as it has not only kept risk balance between EPF/PPF &
ELSS but also gives the financial protection to your portfolio in the form of Term life
insurance. This is ideal investment since it is not only giving you the benefit of tax saving, &
financial protection but also inflation adjusted real returns which helps to create wealth.
Lets take example of, a 25yr old person who starts investing his money according to
Model Asset Allocation suggested earlier till his retirement age of 55. We assume Equity will
deliver return of 12% p.a. & Debt portfolio will give 8% p.a. throughout. Look at the below
table.

9. Age
EPF / PPF /
Bank FD
ELSS
EPF / PPF / Bank
FD Balance
ELSS Balance Portfolio Value
25 37500 87500 40,500.00 98,000.00 138,500.00
26 37500 87500 84,240.00 207,760.00 292,000.00
27 37500 87500 131,479.20 330,691.20 462,170.40
28 37500 87500 182,497.54 468,374.14 650,871.68
29 37500 87500 237,597.34 622,579.04 860,176.38
30 37500 87500 297,105.13 795,288.53 1,092,393.65
31 43750 81250 368,123.54 981,723.15 1,349,846.69
32 43750 81250 444,823.42 1,190,529.93 1,635,353.35
33 43750 81250 527,659.29 1,424,393.52 1,952,052.81
34 43750 81250 617,122.04 1,686,320.74 2,303,442.78
35 43750 81250 713,741.80 1,979,679.23 2,693,421.03
36 43750 81250 818,091.14 2,308,240.74 3,126,331.88
37 43750 81250 930,788.43 2,676,229.63 3,607,018.06
38 43750 81250 1,052,501.51 3,088,377.18 4,140,878.69
39 43750 81250 1,183,951.63 3,549,982.44 4,733,934.07
40 43750 81250 1,325,917.76 4,066,980.34 5,392,898.10
41 56250 68750 1,492,741.18 4,632,017.98 6,124,759.16
42 56250 68750 1,672,910.48 5,264,860.13 6,937,770.61
43 56250 68750 1,867,493.31 5,973,643.35 7,841,136.66
44 56250 68750 2,077,642.78 6,767,480.55 8,845,123.33
45 56250 68750 2,304,604.20 7,656,578.22 9,961,182.42
46 56250 68750 2,549,722.54 8,652,367.60 11,202,090.14
47 56250 68750 2,814,450.34 9,767,651.72 12,582,102.05
48 56250 68750 3,100,356.37 11,016,769.92 14,117,126.29
49 56250 68750 3,409,134.88 12,415,782.31 15,824,917.19
50 56250 68750 3,742,615.67 13,982,676.19 17,725,291.86
51 93750 31250 4,143,274.92 15,695,597.33 19,838,872.25
52 93750 31250 4,575,986.91 17,614,069.01 22,190,055.92
53 93750 31250 5,043,315.87 19,762,757.29 24,806,073.16
54 93750 31250 5,548,031.13 22,169,288.17 27,717,319.30
55 93750 31250 6,093,123.63 24,864,602.75 30,957,726.37

10. So before making investment in tax saving option
Identify your Risk taking Capacity
Determine your Asset Allocation among Asset Classes
Maintain discipline of investing through out investing years
CREATES WEALTH
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