In 2011 December, IDFC Infrastructure Bonds got issued - which provided for an additional Rs 20000 tax-saving investment option beyond the usual 80C limit. The quoted interest rate was 9% p.a. So, someone who was in a 30% tax slab, saved Rs 6000 in FY 2011-12 by investing in this bond. This Rs 20k with 9% p.a compounding would yield Rs 30770 after five years. The interest on the bond is taxable as per the individual investor's tax slab. The interest over 5 years is Rs 10770. For a person who is in 30% tax slab, this means a tax liability of Rs 10770 * 30% = Rs 3231 in FY 2016-17. The net inflow in FY 2017 is Rs 30770 - 3230 = Rs 27540. This is for a net effective investment of Rs 14000 (remember Rs 6000 saved on tax). Works to a very good 14.5% p.a CAGR.
Net tax outgo of Rs 3230 after 5 years is far better compared to a tax outgo of Rs 6000 currently!
There is an option to extend this for another 5 years. Assume this gets extended. Amount accumulated at the end of 10th year is Rs 47347, the interest Rs 27347 would attract tax @ 30% (based on the slab) which means effective net inflow will be Rs 20000 + Rs 27347 * 0.7 = Rs 39143, this on a net investment of Rs 14000 gives a CAGR of 10.83% p.a. Definitely not impressive compared to the 5 year CAGR. Figure out how!
Had it been taxed as long term capital gains (as the debt mutual funds are taxed), it would have been a different scenario. We need to take into out the increase in cost inflation index from the investment year to the current year. In 2012, it was 758, in 2016-17 it is 1125. Indexed Cost would be 1125 / 758 * 20000 = Rs 29683. The net gain of Rs 30770 - Rs 29683 = Rs 1087 will be taxed at 20%, which is just Rs 217! Net post tax gain of Rs 10553, working out to be 8.84% CAGR (assuming no tax benefit of Rs 6000 in the tax saving year)
If the investment had been kept for 10 years, 2006-2007 index was 519. Indexed cost is 1125 / 519 * 20000 = Rs 43352. Total amount accumulated at the end of 10th year is Rs 47347, the difference is Rs 3995 which is taxed at 20% (Rs 800) Net post tax gain of Rs 26547, works out to be 8.81% CAGR.
Net tax outgo of Rs 3230 after 5 years is far better compared to a tax outgo of Rs 6000 currently!
There is an option to extend this for another 5 years. Assume this gets extended. Amount accumulated at the end of 10th year is Rs 47347, the interest Rs 27347 would attract tax @ 30% (based on the slab) which means effective net inflow will be Rs 20000 + Rs 27347 * 0.7 = Rs 39143, this on a net investment of Rs 14000 gives a CAGR of 10.83% p.a. Definitely not impressive compared to the 5 year CAGR. Figure out how!
Had it been taxed as long term capital gains (as the debt mutual funds are taxed), it would have been a different scenario. We need to take into out the increase in cost inflation index from the investment year to the current year. In 2012, it was 758, in 2016-17 it is 1125. Indexed Cost would be 1125 / 758 * 20000 = Rs 29683. The net gain of Rs 30770 - Rs 29683 = Rs 1087 will be taxed at 20%, which is just Rs 217! Net post tax gain of Rs 10553, working out to be 8.84% CAGR (assuming no tax benefit of Rs 6000 in the tax saving year)
If the investment had been kept for 10 years, 2006-2007 index was 519. Indexed cost is 1125 / 519 * 20000 = Rs 43352. Total amount accumulated at the end of 10th year is Rs 47347, the difference is Rs 3995 which is taxed at 20% (Rs 800) Net post tax gain of Rs 26547, works out to be 8.81% CAGR.
No comments:
Post a Comment