Wealth management: under the umbrella of the Income tax.

Wealth management is the need of hour. If we do not agree, then we need to think over it again. Income tax laws have already spelt out some of the basic attitudes, beliefs and strategies of the government towards economic growth. We may say that rebate under the small tax savings scheme is to make the citizen of country liable towards their one social objective of saving for oneself and one’s kith and kin. Maximization of wealth through strategic planning in the income tax law would make the deal sound better. Let us see the income tax law through two different dimensions i.e. individual level and company level.

Tax saving instruments:

At individual level, the needs of each one is unique so as the style and pattern of investing and managing wealth. Today, at individual level, professional like certified financial planner (CFP) carves out strategies for individual to satisfy one’s unique needs with various instruments of investing. The major instruments are

- Mutual funds through ELSS way.

- Life insurance

- Public Provident Fund

- National Saving Certificate.

All instruments are invested for taxation benefits. Each of them get rebate under section 80 C. But all the instruments has some pros and cons

1) Mutual funds through ELSS way: One should invest in such scheme if one lacks time and expertise to analyze and invest in stock market. Professionals managing funds are experts in such fields and have enough access to lot of information. The commonor invest in haphazard manner and ends up in investing one or two scrip as compare to fund managers who will never invest in same but diversifies the risk. One may invest in tax savers through Systematic Investment Plans (SIP) which tends to reduce the effect of fluctuations and is based on rupee cost of averaging i.e. money is invested throughout the years with ups and downs to minimize average cost of holding in volatile market. Mutual funds works on the

principle of never putting all eggs in one basket. All tax saver plans in long term give good returns.

2) Life Insurance: Thus is popular mode of investment and all investor tend to protect against the risk of one’s life. Insurance protects one against all odds that work against the investor’s life in monetary sense to the family members of investor. In case of death, the beneficiary gets the sum assured. Investor does not invest in pure insurance or term product plan, but prefers to invest in endowment or money back policy. Generally, the insurance companies help the people to cultivate the habit of saving the money annually though small but create the value for money in the long term. Insurance company has now discontinued guaranteed return products due to decreasing trend of bank rate and today ULIP has taken over the investing pattern of investor. The overall working of ULIP does matche with the mutual funds with the added benefits of insurance cover.

3) Public Provident Fund: A low risk option, one can invest in maximum RS.70000 annually in designated banks or post office. Currently one gets 9%tax free interest and is subject to change as per the government policies or implementing Exempt Exempt Tax (EET). The period of the scheme is 15 years and can be extended for 5 years thereafter. The best part of PPF A/c is that even court cannot attach this A/c for any types of dues payable.

4) National Saving Certificate: National Saving Certificate (NSC) is a low risk investment with tenure of 7 years backed by government. Rate of interest is 8% which is taxable.

Housing loan: An important question arise that if one is buying a new house, should one buy with the money he saved or go for housing loan???? If one does not have saved money then obviously he has to go for loan. But should one go for a loan if money is available????? If housing loan is taken then one get deduction from tax in two ways; first the interest paid is fully deductible up to RS.150000 and second principal paid is deductible under section 80C. Hence keeping one’s money intact he can go for housing loan and avail all the deductions. As the interest rates are firming up for last three years from 7.5% to 9%, it is advisable to go for fixed rate of interest.

Depreciation: Depreciation is allowed as a deduction, while calculating the profits of the business. This is calculated on fixed assets except land. The rate of depreciation has been changed since 2005-06. this is one of the financial tools for the replacement of the assets at the end of its effective useful life. It is non-cash expenditure hence there is no cash outflow. There Is provision of additional depreciation on the new purchases after April 1, 2005 and one can avail the same on fulfilling conditions thereof.

There are various provisions in income tax laws. If one effectively uses those provisions, one can maximize one’s wealth. Thus when to invest, where to invest and how much to invest depend on the particular need of investor.