Should you invest in Infrastructure Bonds

Tax: Should you invest in Infrastructure Bonds?

March 09, 2010 18:00 IST

One of the fresh tax reliefs in the Budget 2010 is the deduction allowed for investing up to Rs 20,000 in infrastructure bonds.
Many media articles and the finance minister have said that this is a very positive thing. But how can the same thing be positive for every individual? If not negative, it should at least be neutral for many. Else life would be so boring.
This article will try to look the pros and cons of investing in infrastructure bonds for the sake of tax-saving. The analysis will be from the perspective of the different 'tax groups' post Budget 2010.

• Tax group 1: Taxable income Rs 1.6 lakh to Rs 5 lakh.
• Tax group 2: Taxable income Rs 5 lakh to Rs 8 lakh.
• Tax group 3: Taxable income above Rs 8 lakh.

To understand the pros and cons of any tax-saving investment, we need to look at four major parameters:

• Actual tax-saving (let's take the highest saving possible);
• Returns from the investment (during the lock-in period at the least);
• Opportunity cost (what if the same money had been invested in some other investment?); and
• Effect of Inflation on the returns on investment (what would the worth of your investment be when it comes to redeem/encash it?).

Assumptions
For the sake of parameter 2, we will have to make an assumption on the lock-in period (as nothing has so far been announced by the finance minister). As is generally the case with most tax-saving instruments we can assume two scenarios -- a 3-year lock-in and a 5-year lock-in.
Let's assume the rate of return on infrastructure bonds = 5.5% per annum.
Let's consider the overall rate of inflation at 8%.
For people in the Rs 1.6-5 lakh taxable income group, income will be taxed at the rate of 10%.
Parameter 1: Actual tax-saving: 10% of Rs 20,000 = Rs 2,000 (if you invest Rs 20,000 in the instrument you get to reduce your taxable income by Rs 20,000 thus giving a 10 per cent benefit).
Parameter 2: What will be the returns at the end of the lock-in period? For a lock-in period of 3 years an investment of Rs 20,000 would fetch an income of Rs 3,484. When added to the tax saved we get an effective return of Rs 25,485 (Rs 20,000 + Rs 3,484 + Rs 2,000) on our investment.
Parameter 3: If this same amount were to be invested in a market instrument that fetched a return of 15% (which is very reasonable considering that the benchmark Sensex and many mutual funds have given comparatively higher returns over a long period), the investment would fetch an effective return of Rs 27,376 (Rs 20,000 - Rs 2000 = Rs 18,000 invested @15% per annum for 3 years).
Parameter 4: What would be the minimum amount required to counter inflation at 8%? The amount would be Rs 25,194.
Thus we see that for a person in the Rs 1.6-5 lakh slab, the benefit from investing in an infrastructure bond as a tax-saving instrument will be only Rs 291 (Rs 25,485 - Rs 25,194) whereas the benefit from paying tax and investing the balance in any decent instrument would be Rs 2,182.
Similarly, we can calculate the benefits for each segment as well as for a scenario where the lock-in period is 5 years as given in the table below.

Rate of tax	Investments in Infrastructure Bonds			Tax paid in lieu of investing in Infrastructure Bonds
Slab	Tax-savings	Effective Returns		Investment Returns from Market after Tax
		3 years	5 years	3 years	5 years
30%	6,000	29,485	32,139	21,292	28,159
20%	4,000	27,485	30,139	24,334	32,182
10%	2,000	25,485	28,139	27,376	36,204
Required Returns to Counter Inflation Effect		25,194	29,387

The bottomline
As seen from the table above, it makes sense for people in the over Rs 8 lakh taxable income slab to use the infrastructure bonds as a tax-saving instrument.
For the people in the Rs 5-8 lakh bracket, it would be advisable to invest in infrastructure bonds if the period of investment is 3 years, but not for five years and for those in the Rs 1.6-5 lakh bracket, it would be an absolute no-no to invest in Infrastructure Bonds for tax-saving purpose.

Ref:  Rediff

Best Wishes of Golden Jubilee of Maharashtra !!!

Me Marathi … Jay Maharashtra

Need your Support for the School Kit Drive 2010

Hello All,

Schools will re-open shortly. For most children, the excitement of the first day in the new class will begin with new books, new pencils, new pens, new school bags… But there will be a lot of those who would be wishing that their parents too had good money to buy these for them.

To bring the excitement into the lives of these needy children, Seva Sahayog is back with the School Kit Donation Drive ‘2010.

For last 2 years, Seva Sahayog(SS) has been running ‘School kit donation drive’ to gift a School Kit to school-children from economically weaker sections of the society. The School kit contains 1 School bag, 10 notebooks, Pen, Pencil, and a Compass box. The kits are distributed to children from slums, schools, and education-support-centers run by NGOs in and around Pune. Last year, SS were able to bring smile on 10,000+ children’s faces because of 200+ volunteers from various IT companies.

This year SS’s target is to reach 25,000+ children in slums and villages in and around Pune. We all can surely help these children get this joy.

The school-kit costs only Rs. 250.

You can check the document of last year’s report at: http://schoolkit.info/sites/default/files/resource/Report_SK09_new_final.pdf

You could find more about School kit program at: http://www.sevasahayog.com

We look forward to your support again this year to make School Kit Donation Drive 2010 a success.

You may do the following to help these children:

·         Donate for 1 or multiple school kits (You can get tax benefit on donation).

·         For donation you can contact me on 9850875884 or send a cheque in the name of 'Seva international'  to:

Seva Sahayog,
Flat no.7 , Top floor,1015/4 Shreya Apt.

Near Swanand hospital,

Deep bunglow chowk,
Shivaji Nagar

Pune - 411016.

·            Forward this mailer to all your friends, colleagues, employees who may want to help

·            Set up a stall at your office during lunch time for the whole week, and campaign for donations.

·           Collect cheques and cash donations along with donor details, and hand them over to any member of Seva  sahayog. (Donor information form & receipts will be provided by Seva Sahayog).

·         Volunteer your time for assembling the school kits.

Thanks,

Avinash Chougule

IPL Pune Team name is Sahara Pune Warriors

IPL Pune Team Name ..... is "Sahara Pune Warriors"


     The latest entrant to the IPL Team - IPL Pune - announced the name of its team today. Sahara India who won the bid for this new team had released the name today on 24th April. Fans all over are curious to know the name of the IPL Pune.


     As you know IPL Kochi is the other team that will join IPL Pune and 8 other IPL teams from the next season of IPL.

Sahara Present Pune IPL Team Opening Show on 24th April 2010

Sahara Present Pune IPL Team Opening Show At S.p. college ground pune 6.30pm

Would like to see this Poster on Hoardings all over India

For the moment please pass it on to all your friends and relatives......

FAQs on Income Tax II - Payment & Return filing

Hi All,

Good Morning J

Financial year 2009-2010 ended few days back. Now its time to file income tax return.

Every one having lots of questions on it. Here answers to some of the questions are addressed.

And I hope this will clear your doubts.

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How and where can I pay income tax?

Tax can be paid by way of cash, cheque or draft in any authorised national banks, in the prescribed challan. The challan can be obtained from Income tax Offices.

2.    What do you mean by Income Tax Return filing?

Income Tax Return is a statutory return to be filed by assessee with Income Tax Department stating the total income earned & tax paid/payable by him during the previous financial year.

3.    Is it compulsory to file a return of income when there is loss?

If a person has sustained a loss in the previous year and wishes to carry forward the loss to the subsequent year he should furnish a return of loss in the prescribed form before the due date.

4.    Do I have to pay tax on all the money earned?

No, if you are an individual or HUF, you do not have to pay tax till you reach a specified exemption limit; once you cross that limit tax have to be paid as per following rates, slab wise:

For F.Y. 2010-11

Income	Rate (%)
Up to 160000*	NIL
160000 to 500000	10
500000 to 800000	20
Above 800000	30

* Threshold limit for women assessees is Rs. 190000 and for senior citizens it is 240000.

• Plus Education Cess @ 2% is payable on tax plus surcharge

5.    Do I have to file a return even if my income is lower than the exemption limit? What is 1/7 criterion?

If you are Individual or HUF, then Yes, if you fulfils any one of the following conditions at any time during the previous year:

1. Ownership/lease of a motor vehicle.
2. Occupation of any category or categories of immovable property as may be specified by the board by notification whether by way of ownership or tenancy or otherwise.
3. Incurred expenditure on himself or any other person on travel to a foreign country other than Bangladesh, Bhutan, Maldives, Nepal, Pakistan or Sri Lanka (not being a travel to Saudi Arabia for Hajj or travel to China on pilgrimage to Kailash Mansarovar).
4. Subscription of a cellular telephone (not being a wireless in local loop telephone).
5. Holder of a credit card (not being an add-on card or not being a Kisan credit card, issued by a bank or an institution).
6. Member of a club where entrance fees charged is Rs 25,000 or more.
7. Expenditure of Rs 50,000 or more during the previous year towards consumption of electricity.

However, the government has specified that the above provision is not applicable in the case of a Non-Resident Indian (NRI).

Also if you are at least 65 years of old and not engaged in any business /profession, then you may not file return even when you fulfill conditions 2 or 4 above.

6.    There are various returns available on Income Tax Departments site, which one do I need to file?

Class of Assessees	Category	Form
Individuals, HUF, Firms etc. (except companies and charitable assessees)	All cases	Form No. 2D or Saral form
	One by Seven scheme	Form No. 2C
	Business or Profession income	Form No. 2
	Non- business income	Form No.3 or 3D
	Non- business income, No Capital Gain, No agriculture income	3 or 2D or 2E (Naya Saral)
	Non business income and total income less than Rs 2 lakhs	Form No. 2A
Charitable assesses	All cases	Form No 3A
Company except charitable assesses	All cases	Form No 1
Search cases	All cases	Form No 2B

7.    What are the due dates for filing returns for various assesses?

Category	Due date
For four categories namely:  A.      Companies B.      All auditable cases C.      Working partner of auditable firms, D.      Persons covered other than 1/7 scheme,	31st October
In any other case	31st July

8.    What is E-filing of return?

The Electronic Filing of Income Tax Returns was introduced in 2004. Under this scheme, eligible assessees can file their returns of income electronically through authorised persons to act as e-return intermediaries on or before the due date.

The intermediaries digitalise the data of such returns and transmit the same electronically to the e-filing server of Income Tax Department under their digital signatures.

9.    Who are eligible to file e-return?

Any assessee except an Association of persons or Body of Individual, who has been allotted a permanent account number (PAN) and who is assessed or is assessable to tax in any of the selected cities, which are presently on Income Tax network is eligible to file his return of income under this scheme.

10. What do you mean by 'belated return'?

If the return is not furnished within the time prescribed or within the time permitted under a notice issued, the person can furnish the return of any previous year at any time before the end of one year from the end of the relevant assessment year, or before the completion of the assessment year.

11. What are the consequences of filing belated return?

A penalty of up to Rs 5,000 is required to be paid if the tax man picks up your paper for assessment. In addition, a penal interest @ 1% per month would be charged for default in tax payments.

  

12. What is the penalty?

When speaking of belated filing of returns, the tax payer is ought to be in either of the following two situations.

1. He or she has paid all his taxes but failed to file the returns on the due date for genuine reasons.

2. He or she has not only failed to file the returns but also failed to pay his taxes on the due date

In the first case, since the assessee has cleared all his dues to the government, no penalty or interest shall be charged; provided the returns is filed by the end of the assessment year.

However, if the assessee belongs to the second category of people, who have failed to deposit the tax dues with the government before the due date, interest @ 1% per month or part of the month (simple interest) shall be levied on the amount of net tax due from him under section 234A of the Income-Tax Act from the date immediately following the due date till the date of filing of returns.

13. What is Advance Tax?

Advance tax means the advance tax payable in accordance with the provisions of Chapter XVII-C. Tax shall be payable in advance during any financial year in respect of the total income of the assessee which would be chargeable to tax.

Reference: IndiaMoney

Thanks,

Avinash Chougule

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