Review: Kotak Assured Income Plan

Kotak Assured Income Plan is a traditional savings cum protection plan with 15 years premium paying term and provides protection for 30 years. The highlight of the plan is guaranteed tax free annual income for 20 years to the policyholder from the 10^th policy year until the maturity i.e. for a period of 20 years. The plan also pays, apart from the guaranteed annual income, a lumpsum amount of maturity that will be 104-110% of the basic sum assured. The plan also offers rides for extra protection and loan facility.

Let’s have a look on what you pay and what you get. The returns are based on a 30 year old healthy person:

Annual Premium	Life Cover/ Death Benefit	Total Premium Payable During Policy Term	Guaranteed Income	Total Guaranteed Income Received	Lump-sum receipt on Maturity	Total Returns From Kotak Assured Income
	10 Times The Annual Premium	Premium Paying Term is 15 Years	From 10th Till 30th Policy Year	Cumulated for 20 Years	107% of Sum Assured	After 30 years
10,000	1,00,000	1,50,000	9,100	1,82,000	1,07,000	2,89,000
25,000	2,50,000	3,75,000	24,000	4,80,000	2,67,500	7,47,500
50,000	5,00,000	7,50,000	48,000	9,60,000	5,35,000	14,95,000
75,000	7,50,000	11,25,000	75,000	15,15,000	8,02,500	23,17,500
1,00,000	10,00,000	15,00,000	1,01000	20,20,000	10,70,000	30,90,000

Let’s go through the features now:

1.  Guaranteed Returns:

As mentioned early, the major highlight of this plan is the guaranteed or assured annual returns for 20 years from the 10^th policy year. The annual tax free guaranteed percentage returns depend upon the premium that you pay. The assured returns range from 9.10% to 10.10% per annum of the sum assured.

Premium Bands	Assured Annual Income
Up to Rs. 24,999	9.10%
Rs. 25,000 to Rs. 74,999	9.60%
Rs. 75,000 and above	10.10%

2.  Premium Payment Period:

The premiums are to be paid for the period of 15 years.

3.  Life Cover:

The plan offers you the sum assured 10 times of the annual premium for 30 years. In case of death of policyholder during the policy term, the nominee/beneficiary will get the basic sum assured.

4.  Maturity:

The plan matures after 30 years. So in addition to giving a assured income for 20 years, the plan gives you a lumpsum equal to 104% to 110% of Basic Sum Assured on maturity.

5.  Riders:

The plan gives you the following riders for additional protection:

v  Kotak Accidental Death Benefit (ADB)

v  Kotak Permanent Disability Benefit (PDB)

v  Kotak Life Guardian Benefit (LGB)

v  Kotak Accidental Disability Guardian Benefit (ADGB)

6.  Eligibility:

v  Age at entry: 0 to 60 years

v  Age at maturity: 30 to 90 years

v Minimum & Maximum Premium: The minimum is Rs. 10,000 per annum and has no maximum limit. However the maximum amount always depends upon the financial and insurance writing norms.

7.  Loan Facility:

After the policy completes 3 years, you can avail a loan against your policy. The maximum loan can be up to 80% of the surrender value and the rate of interest will be declared by the company from time to time. The minimum loan amount is Rs. 10,000.

8.  Surrender Value:

The policy acquires guaranteed surrender value of 30% of the premiums paid after 3 years. However it excludes the first premium and the rider premiums.

9.  Tax Benefits:

The premiums paid are eligible for tax deduction under section 80C and the annual guaranteed income will be tax free as per current tax laws.

Should You Take This Plan?

The people who seek the capital protection with guaranteed returns year after year may go for it. So if you would rather prefer the guaranteed returns with peace of mind and are not comfortable with the uncertainties and high risk market linked products where the returns are tied to market performance, then go for it. Among the traditional investment products on offer by insurance companies, this is certainly the excellent plan. However if you need a bigger life cover, check term plans. 

Infrastructure Bonds At A Glance.

Infrastructure Bonds: Additional tax savings

Last year, the tax payers were made available an additional deduction of Rs. 20,000 under Section 80CCF. This deduction is available for this year as well over and above the Rs. 100,000 deduction allowed under Section 80C. Under Section 80C an individual is allowed a tax exemption of Rs. 100,000 for investing in specified instruments that include insurance policies, ELSS funds, Provident Funds, Public Provident Funds etc. While some of these exemptions will undergo a change with the introduction of New Tax Code (it is expected from the new financial year), the current year tax exemptions allow for a Rs. 100,000 under Section 80C. It is in addition to this limit that a Rs. 20,000 exemption is allowed this year for investments in Infrastructure bonds under Section 80CCF.

Who can avail of this additional exemption under Section 80CCF?

As per the applicable Section 80CCF, any individual or HUF can invest in these bonds to avail a tax exemption up to a maximum of Rs. 20,000 in the current financial year. For a taxpayer in the highest tax bracket of 30%, such an investment can result in tax savings of approximately Rs. 6,000.

Which companies can issue infrastructure bonds under Section 80CCF?

The tax exemption will be available for investments in infrastructure bonds issued by institutions such as LIC, IDFC, IFCI and others as notified by the Reserve Bank of India as being non-banking finance companies operating in the infrastructure sector.

How does an investment in these bonds work?

These bonds are available for a minimum tenure of 10 years with a lock-in period of 5 years. This basically means that you cannot exit from the bonds for a period of 5 years. At the end of 5 years, investors will typically have an option to avail a buy-back by the issuer, trading it in the secondary market or take a loan by pledging the bonds with specified banks. The interest rates available on these bonds will vary from issuer to issuer and investors can typically opt to either receive interest annually or on a cumulative basis at the end of the holding period.

From a taxation perspective, while the investment in these bonds will allow you to avail of a tax exemption up to a maximum of Rs. 20,000, the interest paid on these bonds is taxable in the hands of the investor. The onus to declare such income and pay applicable tax on it will be on the investor.

Should I invest in infrastructure bonds?

The decision to whether or not to invest in these bonds should be taken keeping in mind the tax savings that you will make by these investments and comparing these against the tax payable on the interest earned and the opportunity loss of not having invested in any other alternate investment options which could give you higher returns.

IDFC offers tranche 2 of long term infrastructure bonds

The Infrastructure Development Finance Company has announced the public issue of the second tranche of long term infrastructure bonds of face value of Rs 5,000, in the nature of secured, redeemable, non-convertible debentures, having benefits under Section 80CCF of the Income Tax Act, 1961, for an aggregate amount not exceeding Rs 4,400 crore.

This is the issue of the second tranche of long term infrastructure bonds having benefits under Section 80CCF of the Income Tax Act, 1961, by the company within the overall aggregate limit of Rs 5000 crore for the financial year 2011-12. The issue of tranche 2 bonds opened for subscription on January 11, 2012, and will close on February 25, 2012, or earlier, as may be decided by the board of the company. In the event of an early closure or extension of the issue, the company shall ensure that notice of the same is provided to the prospective investors through newspaper advertisements on or before such earlier or extended date of Issue closure.

Ratings: The tranche 2 bonds have been rated as (ICRA) AAA by ICRA and Fitch AAA(Ind) by Fitch. While the ICRA rating indicates stable outlook and the highest degree of safety for timely servicing of financial obligations, the Fitch rating indicates a long term stable outlook.

Issue structure:

The Tranche 2 Bonds will be issued in two series - Series 1 Tranche 2 Bonds and Series 2 Tranche 2 Bonds and will carry an interest rate of 8.70% per annum. The Tranche 2 Bonds will carry a minimum Lock-in period of Five (5) Years from the Deemed Date of Allotment and can be redeemed after Ten (10) Years from the Deemed Date of Allotment. The Tranche 2 Bonds also have a buy back option at the end of five (5) years. The Minimum Subscription will be two (2) Tranche 2 Bonds and in multiples of One (1) Tranche 2 Bond thereafter. For the purpose of fulfilling the requirement of minimum subscription of two Tranche 2 Bonds, an applicant may choose to apply for two Tranche 2 Bonds of the same series or two Tranche 2 Bonds across different series.

Security: The Tranche 2 Bonds are fully secured with first floating pari passu charge over certain receivables of the Company and first fixed pari passu charge over specified immoveable properties of the Company. The security cover is 1.0 times of the outstanding Tranche 2 Bonds at any point in time.

80CCF Benefit: The Bonds have been classified as "Long Term Infrastructure Bonds" and are being issued in terms of Section 80CCF of the Income Tax Act, 1961. In accordance with Section 80CCF, an amount, not exceeding Rs. 20,000 per annum in the year of investment, paid or deposited as subscription to Long Term Infrastructure Bonds during the previous year relevant to the assessment year beginning April 01, 2012, shall be deducted in computing the taxable income of a resident individual or Hindu Undivided Family ("the HUF"). In the event that any applicant applies for Tranche 2 Bonds exceeding Rs. 20,000 per annum in the year of the investment, the aforesaid tax benefit shall be available to such applicant only to the extent of Rs. 20,000 per annum in the year of the investment.

The first tranche of the Bonds was issued by the Company in December, 2011 on the terms set out in the Shelf Prospectus and the Prospectus - Tranche 1 dated November 11, 2011 for an aggregate amount of Rs. 532.62 crore. The funds raised through the public issue of Tranche 1 Bonds and Tranche 2 Bonds will be utilized towards "Infrastructure Lending" as defined by Reserve Bank of India ("the RBI") in the Regulations issued by it from time to time, after meeting the expenditures of, and related to the Issue. The Tranche 2 Bonds will be in the nature of Debt and will be eligible for capital allocation and accordingly will be utilized in accordance with Statutory and Regulatory requirements of Reserve Bank of India and the Ministry of Finance.

The Lead Managers to the Bond Issue are Karvy Investor Services Limited, HDFC Bank Limited - Investment Banking Division, ICICI Securities Limited, JM Financial Consultants Private Limited and IDFC Capital Limited. The Co-Lead Managers to the Issue are Bajaj Capital Limited, RR Investors Capital Services Private Limited and SMC Capitals Limited. The Registrar to the Issue is Karvy Computershare Private Limited.

Source: Moneycontrol.com 

Tax Planning For FY 2011-12 Where To Invest & Save Tax ?

The current financial year is going to be completed on 31st March, 2012. Everybody will be in planning How to Save Income Tax? Here we will discuss all about Tax Planning. We should pay taxes every year as responsible citizens. However, the law allows certain “tax-deductible” savings and we owe it to ourselves to benefit from these options, which could translate into future savings. Every citizen has a fundamental duty to pay taxes honestly and a fundamental right to avail of all the tax incentives that the law provides. Therefore, through prudent tax planning, not only can we reduce our income-tax liability but also secure our future through compulsory savings. Let us see how one can do successful tax planning to enjoy optimum benefits.

Know The Tax Slabs/brackets:

The Most Important Section For Individual Tax Payers For Tax Saving – Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Under this section, you can invest a maximum of Rs 1 lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000.

  

Qualifying Investment options under Section 80C

Investment options with Section 80C can be segregated as follows: 

Provident Fund & Voluntary Provident Fund: Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer’s contribution. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF).

Public Provident Fund: An account can be opened with a nationalized bank or Post office. The current rate of interest is 8%, which is tax-free and the maturity period is 15 years. The minimum amount of contribution is Rs 500 and the maximum is Rs 10,00,00.

National Savings Certificate: These are now 5-year small-savings instrument, where the rate of interest is 8% and is compounded half-yearly. The interest accrued every year is liable to tax but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included. Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction under Section 80C. The things are however going to change after the introduction and implementation of DTC.  So be careful if you are buying new insurance policies just to save tax. You may be in for shock later on. So better consult your financial planner (not insurance agent).

Equity-linked savings scheme (ELSS): An ELSS (equity-linked savings scheme), offered by mutual funds, is a diversified equity scheme with a three-year lock-in period, providing tax benefits under Section 80C of the IT Act. As 80-100% of the corpus in a diversified equity scheme is invested in the equity market, the performance of these funds is in line with market trends.

Tax benefits for ELSS, however, will become history once the new DTC comes into force on April1, 2012. So this year is probably is the last opportunity for anyone looking to save tax through ELSS.

Home Loan Principal Repayment: Your EMI consists of two components, namely principal and interest. The principal component of the EMI qualifies for deduction under Section 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act.

Stamp Duty and Registration Charges For Home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C. However, this can be done only in the year in the year of purchase of the house.

Five-Year Bank fixed deposits: Tax-saving fixed deposits (FDs) of scheduled banks with tenure of five years are also entitled for section 80C deduction.

Children’s Tuition Fees: Apart from the above, things like children’s tuition fees expenses that can be claimed as deductions under Section 80C. However, you need receipts to claim the same.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax.

5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) – which currently offers 7.5 per cent rate of interest –qualifies for tax saving under section 80C. Effective rate works out to be 7.71% per annum (p.a.) as the rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable.

Investment Option To Save Taxes!

What are the investment schemes where investors can save taxes?

An investor can save taxes by investing under the following sections of the Income Tax Act, 1961:

v  Section 80C (Investment avenues are discussed below in detail)

v  Section 80D (Health insurance premium etc)

v  Section 80E (Educational loan)

v  Section 80G (Donation to specified institutions)

v  Section 80U (Deduction for handicapped people)

v  Section 24 (Housing loan interest)

Under Section 80C tax deduction an individual could invest up to a maximum limit of Rs 1 lakh in one or more of the following options put together:

v  PPF (Public Provident Fund): Under this scheme the maximum investment permissible in a financial year is Rs 100,000

v  EPF (Employees Provident Fund)

v  Life Insurance Premium

v  Pension Plan premium (under Sec 80CCC)

v  ULIP

v  ELSS (Equity linked saving scheme)

v  NSC (National Savings Certificate)

v  5-year bank fixed deposit

v  5-year post office time deposit

v  Infrastructure bonds / NABARD rural bonds

v  NPS (New Pension Scheme) under Sec 80CCD