Module 3

Tax Deduction: A Tax Deduction is an expense that you can subtract from your total taxable
income, reducing the amount of income that is subject to tax. Deductions help lower your tax
liability and are typically allowed by governments to encourage certain types of spending, such
as investments, education, or medical expenses.

1. Section 80C – Deductions on Investments (Max: ₹1,50,000)

Eligible Investments & Expenses:

 Life Insurance Premium (Self, spouse, children)

 Employee Provident Fund (EPF)
 Public Provident Fund (PPF)
 National Savings Certificate (NSC)
 5-year Fixed Deposit (with a scheduled bank)
 Tuition Fees (for up to 2 children)
 Equity Linked Savings Scheme (ELSS)
 Principal Repayment on Home Loan
 Sukanya Samriddhi Yojana (SSY)

2. Section 80D – Deduction for Medical Insurance

 Self, Spouse, Children: ₹25,000 (₹50,000 if senior citizen)

 Parents: ₹25,000 (₹50,000 if senior citizen)
 Preventive Health Check-ups: ₹5,000 (included within the above limits)

3. Section 80E – Deduction on Education Loan Interest

 For Higher Education Loans (Self, spouse, children)

 No upper limit; only the interest portion is deductible.
 Deduction available for 8 years or until the loan is repaid.

4. Section 80G – Donations to Charitable Institutions

 100% or 50% deduction, depending on the organization.

 Donations to PM CARES Fund, National Defence Fund qualify for 100% deduction.
 Contributions exceeding ₹2,000 must be made via bank transfer (not cash).

5. Section 80I – Profits from Industrial Undertakings

 Deduction for specific businesses like infrastructure, power generation, SEZs, etc.
  Varies between 30% to 100% for 5-10 years, depending on the business type.

6. Section 80JJA – Deduction for Employment Generation

 30% of additional employee cost deductible for 3 years.

 Applies to businesses hiring new employees (earning < ₹25,000/month).

7. Section 80QQB – Deduction for Authors

 Royalty income from books (excluding textbooks) is eligible.

 Deduction: ₹3,00,000 or actual royalty income (whichever is lower).

8. Section 80RRB – Deduction for Patent Holders

 Maximum Deduction: ₹3,00,000.

 Applicable if an individual earns royalty income from a patent registered in India.

9. Section 80TTA – Deduction on Savings Account Interest

 Up to ₹10,000 for individuals and HUFs.

 Applies only to savings account interest (not fixed deposits).

10. Section 80U – Deduction for Disabled Individuals

 40% disability: ₹75,000 deduction.

 80% or more disability: ₹1,25,000 deduction.
 No medical bills required; only disability certificate needed.

Other Relevant Sections

 Section 80GGC: 100% deduction for political party donations (except in cash).
 Section 80EEA: Deduction of ₹1,50,000 on home loan interest (for first-time
homebuyers).
 Section 80EEB: Deduction of ₹1,50,000 for electric vehicle loan interest.

Direct Tax Code (DTC) : The Direct Tax Code (DTC) was a proposed replacement for the
Income Tax Act, 1961, aimed at simplifying and modernizing India's direct tax system.
However, the DTC was never implemented, as many of its provisions were incorporated into
existing tax laws through various amendments.

Objectives of the Direct Tax Code (DTC)

1. Simplification of Tax Laws – To replace the complex Income Tax Act, 1961 with a
more straightforward tax code.
2. Wider Tax Base – To include more taxpayers and reduce tax evasion.
3. Stable Tax Structure – To create a tax system with less frequent changes.
 4. Elimination of Exemptions – To reduce multiple deductions and exemptions, ensuring
transparency.
5. Global Best Practices – To align with international tax systems and reduce litigation

Provisions of the Proposed DTC

1. Changes in Income Tax Slabs

o Higher exemption limits were proposed.

o More simplified tax rates for individuals and businesses.

2. Corporate Tax Rationalization

o Reduction in corporate tax rates.

o Removal of unnecessary exemptions.

3. Minimum Alternate Tax (MAT) Adjustments

o MAT was proposed to be calculated based on gross assets instead of profits.

4. Capital Gains Tax Simplification

o Uniform tax treatment for short-term and long-term capital gains.

5. Reduction of Deductions and Exemptions

o Many tax deductions under Section 80C and others were proposed to be
streamlined.

Current Status of the DTC

 The Direct Tax Code was never fully implemented.

 Instead, many of its principles were adopted in the Finance Acts over the years.
 The Budget 2020 and 2023 reforms introduced lower tax rates and removed many
exemptions, similar to what the DTC aimed to do.

Taxation Impact on Different Investment Options in India

Investors need to consider tax implications before choosing an investment avenue. Here’s a
breakdown of how different investment options are taxed in India under the Income Tax Act,
1961.

1. Equity Investments

a) Stocks (Listed Equity Shares)

 Short-Term Capital Gains (STCG) Tax: 20% (if sold within 1 year).
 Long-Term Capital Gains (LTCG) Tax: 12.5% (if gains exceed ₹1,00,000 in a
financial year).
b) Equity Mutual Funds

 STCG Tax: 15% (if redeemed within 1 year).

 LTCG Tax: 10% (if gains exceed ₹1,00,000 in a financial year).

c) ELSS (Equity Linked Savings Scheme)

 Tax Benefit: Deduction up to ₹1,50,000 under Section 80C.

 Lock-in Period: 3 years.
 LTCG Tax: 10% on gains above ₹1,00,000.

2. Debt Investments

a) Fixed Deposits (FDs)

 Interest Tax: Taxed as per individual income tax slab.

 TDS: 10% (if interest exceeds ₹40,000 for individuals and ₹50,000 for senior citizens).

b) Debt Mutual Funds (Before April 1, 2023)

 STCG Tax: As per income tax slab (if held for <3 years).
 LTCG Tax: 20% with indexation benefit (if held for >3 years).

c) Debt Mutual Funds (After April 1, 2023)

 No LTCG tax benefit. All gains taxed as per income tax slab.

3. Government-backed Schemes

a) Public Provident Fund (PPF)

 Tax Benefit: Deduction up to ₹1,50,000 under Section 80C.

 Interest Tax: Fully exempt.
 Withdrawal Tax: Fully exempt.

b) National Pension System (NPS)

 Tax Benefit:
o ₹1,50,000 under Section 80C.

o Additional ₹50,000 under Section 80CCD(1B).

 Maturity Taxation:
o 60% withdrawal tax-free.

o 40% must be used to buy an annuity, which is taxable.

c) Sukanya Samriddhi Yojana (SSY)

  Tax Benefit: Deduction up to ₹1,50,000 under Section 80C.
 Interest & Maturity Tax: Fully exempt.

4. Real Estate

a) Rental Income

 Taxed as "Income from House Property".

 Deduction of 30% on rental income under Section 24.
 Home Loan Interest Deduction:
o ₹2,00,000 deduction under Section 24(b) (if self-occupied).

o No limit if rented out.

b) Capital Gains Tax on Property Sale

 STCG (Held <2 years): Taxed as per income tax slab.

 LTCG (Held >2 years): 20% with indexation benefit.
 Tax Exemption: Under Section 54 (if reinvested in another property).

5. Gold & Digital Assets

a) Physical Gold & Gold ETFs

 STCG Tax: As per income tax slab (if held <3 years).
 LTCG Tax: 20% with indexation benefit (if held >3 years).

b) Sovereign Gold Bonds (SGBs)

 Interest Tax: 2.5% interest is taxable.

 Capital Gains Tax: Fully exempt if held till maturity (8 years).

c) Cryptocurrency & Virtual Digital Assets

 Flat 30% tax on gains (no deductions allowed).

 1% TDS on transactions above ₹50,000 per year.

6. Provident Funds & Retirement Schemes

a) Employee Provident Fund (EPF)

 Tax Benefit: Deduction up to ₹1,50,000 under Section 80C.

 Interest Tax: Exempt up to ₹2.5 lakh contribution per year.
 Withdrawal Tax: Tax-free if held for 5+ years.

b) Voluntary Provident Fund (VPF)

  Tax Benefit: Deduction up to ₹1,50,000 under Section 80C.

 Interest Tax: Fully taxable if contribution exceeds ₹2.5 lakh/year.

Taxation on Investment Options

Investment Type Tax on Income/Gains Tax Benefit (If Any)

Stocks 20% (STCG), 12.5% (LTCG > ₹1L) None

Equity Mutual Funds 15% (STCG), 10% (LTCG > ₹1L) ELSS: ₹1.5L deduction (80C)

Fixed Deposits As per tax slab None

Debt Mutual Funds As per tax slab No LTCG benefit from 2023

PPF Fully Exempt ₹1.5L deduction (80C)

₹1.5L (80C) + ₹50K

NPS 60% tax-free
(80CCD(1B))

Rental Income Taxed after 30% deduction Home Loan: ₹2L deduction (24b)

Real Estate Sale 20% LTCG with indexation Exemption (54) if reinvested

Gold 20% LTCG with indexation SGBs tax-free on maturity

Crypto Flat 30% tax No deductions allowed

Personal Tax Planning: Strategies to Minimize Tax Liability

Personal tax planning is the process of analyzing your financial situation to maximize tax
savings while complying with tax laws. Effective tax planning ensures that you pay the
minimum required tax while making the most of deductions, exemptions, and rebates.

Types of Tax Planning

1. Short-Term Tax Planning – Planning done within a financial year to reduce tax
liability (e.g., investing in ELSS before March 31st).
2. Long-Term Tax Planning – Strategic planning over multiple years (e.g., investing in
PPF, buying a house for tax benefits).
3. Permissive Tax Planning – Utilizing tax benefits allowed by law (e.g., claiming
deductions under Section 80C, 80D, etc.).
4. Purposive Tax Planning – Structuring investments to achieve financial goals and tax
efficiency (e.g., tax-free retirement planning with NPS).

A. Optimize Tax Deductions (Section 80C & More)

  Invest in tax-saving instruments under Section 80C (₹1,50,000 limit):
o ELSS (Equity Linked Savings Scheme) – Tax-efficient, 3-year lock-in.

o PPF (Public Provident Fund) – Tax-free maturity, 15-year lock-in.

o EPF (Employee Provident Fund) – Employer & employee contributions are tax-
free.
o NSC (National Savings Certificate) – 5-year lock-in, taxable interest.

o Sukanya Samriddhi Yojana (SSY) – For girl child, tax-free maturity.

 Additional Deductions:
o 80D: Medical insurance premium (₹25,000; ₹50,000 for senior citizens).

o 80E: Education loan interest (no limit).

o 80TTA: Savings account interest (₹10,000 limit).

o 80U: Disability tax benefits (₹75,000 – ₹1,25,000).

B. Reduce Tax on Salary (For Salaried Individuals)

 Optimize Salary Structure:

o House Rent Allowance (HRA) – If you live in a rented house.

o Leave Travel Allowance (LTA) – Two claims in four years.

o Food Coupons (Tax-free up to ₹50 per meal).

o Mobile & Internet Reimbursement – Tax-free if used for work.

 Contribute to EPF & NPS:

o NPS (Section 80CCD(1B)) – Extra ₹50,000 deduction.

o Voluntary Provident Fund (VPF) – Extra contribution to EPF.

C. Reduce Tax on Investments

 Invest in Tax-Free Income Options:

o PPF, EPF, SSY, Life Insurance Maturity – Fully tax-free.

o Sovereign Gold Bonds (SGBs) – Tax-free if held till maturity.

o NPS (60% withdrawal tax-free at maturity).

 Reduce Tax on Stock Market Investments:

o Sell stocks/mutual funds after 1 year to benefit from 10% LTCG tax (above
₹1,00,000) instead of 15% STCG tax.
o Use harvesting strategy to book gains up to ₹1,00,000 every year (exempt from
LTCG tax).
D. Tax Planning for Homeowners

 Home Loan Tax Benefits:

o Principal repayment (80C) – Up to ₹1,50,000 deduction.

o Interest on home loan (Section 24b) – ₹2,00,000 deduction.

o First-time buyers (Section 80EEA) – Extra ₹1,50,000 deduction.

o If you have two home loans, you can declare one as self-occupied and claim
deductions for both.

E. Retirement & Estate Planning (Tax-Free Income Sources)

 Retirement Planning:
o NPS – 60% tax-free withdrawal.

o EPF & PPF – Completely tax-free maturity.

o Senior Citizens Savings Scheme (SCSS) – Taxable but offers fixed returns.

 Estate Planning & Gifts:

o No tax on gifts to spouse, children, parents.

o Tax on gifts exceeding ₹50,000 (except from relatives).

o Will-based planning to avoid future tax complications.

Common Mistakes in Tax Planning

1. Investing only for tax savings – Choose investments based on financial goals, not just
tax benefits.
2. Not utilizing all deductions – Many people miss out on NPS (80CCD(1B)) or health
check-up deductions (80D).
3. Ignoring LTCG tax on equity – Harvest LTCG gains up to ₹1,00,000 tax-free every
year.
4. Missing out on home loan benefits – Even a joint loan can maximize tax deductions.
5. Not using employer benefits – Take advantage of HRA, LTA, meal vouchers, and
reimbursements.

Filing Income Tax Returns (ITR) in India

Filing an Income Tax Return (ITR) is mandatory for individuals and businesses earning above
the exemption limit set by the Income Tax Department of India. Even if your income is below
the taxable limit, filing ITR can help you claim refunds, carry forward losses, and improve
financial credibility.

1. Who Should File an ITR?

✔ Individuals whose gross annual income exceeds:

  ₹2,50,000 (for individuals below 60 years).
 ₹3,00,000 (for senior citizens aged 60–79 years).
 ₹5,00,000 (for super senior citizens aged 80+ years).

✔ If you have any of the following conditions:

 You have taxable income, even after deductions.

 You paid TDS and want a refund.
 You have capital gains from stocks, property, or mutual funds.
 You own foreign assets or have foreign income.
 Your business turnover exceeds ₹60 lakh or professional income exceeds ₹10 lakh
(as per Budget 2023).

2. Types of ITR Forms

ITR Form Who Should File?

ITR-1 Salaried individuals with income up to ₹50 lakh (Salary, One House Property,
(Sahaj) Interest Income).

Individuals with capital gains, multiple house properties, foreign assets, or

ITR-2
income above ₹50 lakh.

ITR-3 Individuals or HUFs with business/professional income.

ITR-4 Presumptive taxation scheme for freelancers, businesses, or professionals with

(Sugam) turnover up to ₹3 crore.

ITR-5 Partnership firms, LLPs, and associations.

ITR-6 Companies (except those exempt under Section 11).

ITR-7 Trusts, NGOs, and charitable organizations.

3. Documents Required for Filing ITR

📌 For Salaried Individuals: ✔ Form 16 – Issued by your employer, showing salary,

deductions, and TDS.
✔ Salary Slips – For allowances and exemptions.
✔ Form 26AS – Shows tax deducted and deposited with the IT Department.
✔ Bank Statements – For interest income, savings, or dividends.
✔ Investment Proofs – PPF, ELSS, LIC, NPS, FDs, etc.
✔ Home Loan Interest Certificate – To claim deductions under Section 24(b).

📌 For Business Owners or Professionals: ✔ Profit & Loss Statement and Balance Sheet.
✔ GST Returns (if applicable).
✔ TDS Certificates (Form 16A/16B/16C).
✔ Bank Statements for business transactions.

ITR Filing Deadlines

Category Due Date

Individuals & HUFs July 31

Businesses requiring audit October 31

Companies October 31

Tax Audit Cases October 31

Transfer Pricing Cases November 30

Penalty for Late Filing

Filing Time Penalty

After July 31 but before Dec 31 ₹5,000

After Dec 31 (but before March 31) ₹10,000

If Income < ₹5 lakh ₹1,000

6. Benefits of Filing ITR on Time

✔ Avoid Late Fees & Interest under Section 234F & 234A.
✔ Faster Processing of Refunds (if excess TDS is deducted).
✔ Proof of Income for loan approvals, visa applications, and credit cards.
✔ Carry Forward Losses – You can set off capital losses against future profits.
✔ Avoid Scrutiny – Late filing may trigger tax department notices.

Common Mistakes to Avoid

❌ Choosing the Wrong ITR Form – May lead to rejection.

❌ Not Verifying ITR – Unverified returns are invalid.
❌ Mismatch in Income & Form 26AS – Leads to tax notices.
❌ Not Claiming All Deductions – Missing out on tax savings.
❌ Filing ITR at the Last Minute – Risk of errors and penalties.

Module 4

Retirement Planning & Wealth Management

Retirement Planning : Retirement planning is the process of determining financial goals and
setting aside funds to ensure financial security after retirement. It helps individuals maintain their
standard of living without relying on employment income.

Objectives:

 Financial independence in old age.

 Inflation-proof income.
 Medical security.
 Wealth transfer to heirs.

Steps in Retirement Planning

1. Assess Current Financial Status

o Identify sources of income, assets, liabilities, and expenses.

o Estimate retirement corpus based on expected lifestyle.

2. Determine Post-Retirement Expenses

o Basic living expenses (food, rent, utilities).

o Healthcare & medical costs.

o Travel & leisure.

o Family support & emergency fund.

3. Identify Income Sources Post-Retirement

o Pension Plans (NPS, EPF, PPF, Annuities).

o Investments (Mutual Funds, Fixed Deposits, Real Estate).

o Passive Income (Rental income, dividends, reverse mortgage).

4. Choose Suitable Investment Options

o Young investors (25-40 years): High-risk, equity-based investments.

o Mid-career (40-55 years): Balanced mix of equity and fixed-income.

o Pre-retirement (55+ years): Low-risk, stable income sources.

5. Plan for Contingencies

o Health insurance.

o Emergency funds (6-12 months of expenses).

o Power of attorney for financial & legal matters.

 6. Regularly Review & Adjust Plan

o Rebalance investments every 5 years.

o Adjust for inflation & life events (marriage, children, medical needs).

Retirement Savings & Investment Options

1. Pension & Provident Funds

o Employees’ Provident Fund (EPF) – Employer & employee contribute 12%
each.
o Public Provident Fund (PPF) – 15-year government-backed savings.

o National Pension System (NPS) – Market-linked retirement corpus.

2. Insurance Plans for Retirement

o Term Life Insurance – Covers financial dependents.

o Annuity Plans – Provides guaranteed income post-retirement.

3. Mutual Funds & Stocks

o Equity investments for long-term growth.

o Systematic Withdrawal Plans (SWP) for regular income.

4. Fixed Deposits & Bonds

o Senior Citizen Fixed Deposits (higher interest rates).

o Government Bonds & Debt Funds (stable returns).

5. Real Estate & Reverse Mortgage

o Rental income from properties.

o Reverse mortgage – Converts home equity into monthly payouts.

Senior Citizen Retirement Schemes in India

 Senior Citizens’ Savings Scheme (SCSS) – 8% interest, 5-year tenure.
 Pradhan Mantri Vaya Vandana Yojana (PMVVY) – 10-year annuity scheme by LIC.
 Atal Pension Yojana (APY) – Pension scheme for unorganized sector workers.

Common Retirement Planning Mistakes

 Not starting early – Results in a smaller corpus.

 Ignoring inflation – Leads to underestimating post-retirement expenses.
  Relying only on employer benefits – No diversification.

 Not planning for medical emergencies – High healthcare costs.

 Lack of estate planning – Leads to legal complications for heirs.

Pension Plans Available in India

Pension plans are financial products designed to provide regular income post-retirement. They
help individuals maintain financial stability and cover expenses after they stop earning a salary.

1. Government-Backed Pension Schemes

1.1 National Pension System (NPS)

 Type: Market-linked pension scheme.

 Eligibility: Any Indian citizen (18–70 years).
 Contributions:
o Tier I Account: Mandatory for retirement savings (lock-in till 60 years).

o Tier II Account: Voluntary savings (withdraw anytime).

 Tax Benefits:
o ₹1.5 lakh deduction under Section 80CCD(1).

o Additional ₹50,000 deduction under Section 80CCD(1B).

 Returns: Based on investment in equity, corporate bonds, and government securities.

 Withdrawal Rules:
o 60% tax-free withdrawal at retirement.

o 40% used to buy an annuity (monthly pension).

1.2 Employees’ Pension Scheme (EPS)

 Type: Employer-backed pension for salaried employees under EPFO.

 Eligibility: Employees earning up to ₹15,000/month (mandatory for EPF members).
 Contribution:
o Employer contributes 8.33% of basic salary (up to ₹1,250/month).

 Pension Benefit:
o Minimum pension: ₹1,000/month.

o After 10 years of service, eligible for lifetime pension.

1.3 Atal Pension Yojana (APY)

  Type: Government-backed pension for low-income individuals.
 Eligibility: Indian citizens (18–40 years).
 Contribution: Small monthly payments based on age.
 Pension Amount: ₹1,000 to ₹5,000 per month after 60 years.
 Tax Benefits: Up to ₹1.5 lakh deduction under Section 80CCD(1).

1.4 Pradhan Mantri Vaya Vandana Yojana (PMVVY)

 Type: Senior citizen pension scheme run by LIC.

 Eligibility: 60+ years of age.
 Investment Limit: Maximum ₹15 lakh.
 Pension Payout: Fixed 7.4% annual return for 10 years.
 Tax Benefit: Exempt from GST, but pension is taxable.

2. Private Pension Plans (Offered by Insurance Companies)

2.1 Immediate Annuity Plans

 Example: LIC Jeevan Akshay VII, HDFC Life Click 2 Retire.

 How it Works:
o One-time lump sum investment.

o Starts paying immediate pension for life.

o No accumulation phase.

2.2 Deferred Annuity Plans

 Example: LIC Jeevan Nidhi, SBI Life Retire Smart.

 How it Works:
o Contribute regularly till retirement.

o Pension starts after a fixed vesting period (e.g., 60 years).

o Suitable for long-term planning.

2.3 Unit Linked Pension Plans (ULPPs)

 Example: ICICI Pru Easy Retirement, HDFC Life Pension Guaranteed Plan.
 How it Works:
o Invests in equities & bonds for higher returns.

o Market-linked, with some risk.

3. Corporate Pension Plans

Many employers offer pension benefits to employees, such as:

 Defined Benefit Plans: Fixed pension based on salary history.

 Defined Contribution Plans: Pension depends on employer & employee contributions.

4. Reverse Mortgage Scheme (For Senior Citizens)

 Allows homeowners (60+ years) to mortgage property & get monthly income.
 The bank sells the property after death & recovers the amount.

Conclusion

Best Pension Plan Based on Your Needs:

✔ For Government Employees: EPS + NPS.
✔ For Salaried Employees: NPS + Corporate Pension.
✔ For Self-Employed: PPF + ULPPs + Annuity Plans.
✔ For Low-Income Groups: APY.
✔ For Senior Citizens: PMVVY + Reverse Mortgage.

Provident Fund : A Provident Fund (PF) is a long-term retirement savings scheme designed to
provide financial security to employees after retirement. It is a government-mandated savings
system where both employers and employees contribute a portion of the employee's salary to
build a retirement corpus.

Types of Provident Funds in India

Employees' Provident Fund (EPF)

 Managed by: Employees’ Provident Fund Organization (EPFO).

 Applicability: Mandatory for companies with 20+ employees.
 Contribution:
o Employee: 12% of Basic Salary + DA.

o Employer: 12% (8.33% to EPS, 3.67% to EPF).

 Interest Rate: 8.15% (FY 2023-24).

 Tax Benefits:
o Employee contribution: Deduction under Section 80C.

o Employer’s contribution: Exempt up to ₹7.5 lakh per year.

o Interest is tax-free if PF is held for 5+ years.

Withdrawal Rules:
  Partial Withdrawal allowed for:
o Medical emergencies.

o Higher education & marriage.

o Home purchase (after 5 years).

 Full Withdrawal: Allowed after retirement (58 years) or 2 months of unemployment.

Public Provident Fund (PPF)

 Managed by: Government of India.

 Eligibility: Available to self-employed, salaried individuals, and non-salaried people.
 Tenure: 15 years (extendable in 5-year blocks).
 Contribution Limit: ₹500 to ₹1.5 lakh per year.
 Interest Rate: 7.1% (FY 2023-24, tax-free).
 Tax Benefits:
o 80C deduction (up to ₹1.5 lakh).

o Interest & maturity amount are tax-free.

 Withdrawal Rules:
o Partial withdrawal after 6 years.

o Full withdrawal after 15 years.

Voluntary Provident Fund (VPF)

 Applicable to: Salaried employees who want to contribute beyond 12% EPF limit.
 Interest Rate: Same as EPF (8.15%).
 Tax Benefits:
o Contributions qualify for 80C deduction.

o Interest tax-free if held for 5+ years.

General Provident Fund (GPF)

 Applicable to: Government employees only.

 Contribution: Minimum 6% of salary, no maximum limit.
 Interest Rate: 7.1%.
 Tax Benefits:
o 80C deduction for contributions.

o Interest & maturity amount are tax-free.

Key Differences Between EPF, PPF, VPF & GPF
Feature EPF PPF VPF GPF

Any Indian Salaried

Eligibility Salaried Employees Govt. Employees
Citizen Employees

₹500 to ₹1.5L Beyond 12%

Contribution 12% of Basic Salary Min. 6% of Salary
per year EPF

Tenure Until retirement 15 years Until retirement Until retirement

Interest Rate 8.15% 7.1% 8.15% 7.1%

80C + tax-free 80C + tax-free

Tax Benefits 80C deduction 80C deduction
maturity maturity

After 2 months of
Withdrawal After 15 years Similar to EPF On retirement
unemployment

Benefits of Provident Fund

✔ Safe & Guaranteed Returns – Government-backed schemes with fixed interest.

✔ Tax Benefits – Exemptions under Section 80C and tax-free interest (PPF, GPF).
✔ Retirement Security – Provides financial stability post-retirement.
✔ Flexible Withdrawal Options – Partial withdrawal allowed for emergencies.

Gratuity : Gratuity is a lump sum payment made by an employer to an employee as a token of

appreciation for long-term service. It is governed by the Payment of Gratuity Act, 1972 and is
applicable to organizations with 10 or more employees.

Eligibility for Gratuity

An employee is eligible for gratuity if:

✔ They have completed at least 5 years of continuous service with the employer.
✔ They resign, retire, or are terminated (except for misconduct).
✔ In case of death or disability, gratuity is paid to the nominee/legal heirs (5-year rule not
applicable).

Calculation of Gratuity

Gratuity is calculated using the formula:

Gratuity=Last Drawn Salary×15×Years of Service /26

Where:

 Last Drawn Salary = Basic Salary + Dearness Allowance (DA).

 15 represents 15 days of salary per year.
  26 represents the number of working days in a month.

Gratuity Limits & Taxation

Maximum Exemption Limit: ₹20 lakh (for government & private employees).
Tax Treatment:

 Government Employees: Fully tax-free.

 Private Employees: Exempt up to ₹20 lakh under Section 10(10) of the Income Tax
Act.
 Excess amount over ₹20 lakh is taxable as per income tax slabs

Difference Between Gratuity & Provident Fund

Feature Gratuity Provident Fund (PF)

Who Pays? Employer Employer + Employee

Eligibility 5+ years of service No minimum period

Tax Fully tax-free (PPF), Taxable (EPF interest

Up to ₹20 lakh
Exemption after ₹2.5 lakh)

Only on
Withdrawal Can be partially withdrawn
resignation/retirement/death

Objective Employee appreciation Retirement savings

Life Insurance: Life Insurance is a financial contract between an individual and an

insurance company where the insurer promises to pay a sum assured to the nominee in case of
the policyholder’s death or maturity of the policy. It provides financial security to the
insured’s family.

Types of Life Insurance Plans:

Term Insurance Plans (Pure Protection Plan)

 Provides only death benefit (no maturity benefit).

 Cheapest life insurance with high coverage at low premiums.
 Example: ₹1 crore coverage for ₹10,000/year.
 Best for: Income replacement & financial security.
 Tax Benefit: Premiums eligible for 80C deduction.

Whole Life Insurance

  Covers the insured for their entire life (up to 99 or 100 years).
 Has a maturity value + death benefit.
 Higher premium than term insurance.
 Best for: Legacy planning & wealth transfer.

Endowment Plans (Savings + Insurance)

 Provides death benefit + maturity benefit (if insured survives the term).
 Offers guaranteed returns at maturity.
 Best for: Low-risk investors who want savings + insurance.

Money-Back Policies (Periodic Payouts + Insurance)

 Survival benefits paid at fixed intervals during policy term.

 On death, nominee gets full sum assured regardless of earlier payouts.
 Best for: Those needing periodic income along with life cover.

Unit Linked Insurance Plans (ULIPs) (Investment + Insurance)

 Invests in equity & debt markets, offering market-linked returns.

 Higher risk but potentially higher returns.
 Best for: Investors looking for long-term growth with life cover.
 Tax Benefits:
o 80C deduction on premiums.

o Maturity proceeds tax-free under Section 10(10D) (if premium < 10% of sum
assured).

Child Insurance Plans (Education & Future Planning)

 Provides lump sum payment for child’s education or marriage.

 In case of parent’s death, insurer continues paying premiums (waiver benefit).
 Best for: Parents planning for a child’s future.

Pension/Annuity Plans (Retirement Planning)

 Helps in retirement planning by providing regular pension after maturity.

 Two types:
o Immediate Annuity – Starts payout immediately after lump sum investment.

o Deferred Annuity – Invest now & get pension after retirement.

 Best for: Retirement income security.

Tax Benefits on Life Insurance

Section 80C – Deduction on premium (up to ₹1.5 lakh).

Section 10(10D) – Maturity proceeds tax-free (conditions apply).
Section 80D – Deduction on health riders (if added to policy).

General Insurance Plans : General Insurance provides financial protection against unexpected
losses other than life-related risks. It covers assets, health, travel, and liabilities, offering risk
mitigation and financial stability. Unlike life insurance, it does not offer maturity benefits.

Types of General Insurance Plans

Health Insurance

 Covers medical expenses due to illness, hospitalization, and accidents.

 Types:
o Individual Health Insurance – Covers one person.

o Family Floater Policy – Covers entire family under a single sum insured.

o Critical Illness Insurance – Provides a lump sum on diagnosis of serious

diseases (cancer, heart attack, etc.).
o Senior Citizen Health Insurance – Special policies for elderly individuals.

 Tax Benefits: Section 80D (deduction on premiums up to ₹50,000 for senior citizens).

Motor Insurance

 Covers damages to vehicles & third-party liabilities.

 Types:
o Third-Party Insurance – Covers damages caused to others (mandatory in India).

o Comprehensive Insurance – Covers own damage + third-party liability.

o Zero Depreciation Policy – Provides full claim without depreciation deductions.

Travel Insurance

 Covers financial losses due to:

o Trip cancellations, medical emergencies, lost baggage, flight delays, etc.

 Essential for international travel

Home Insurance

 Covers damage to property due to fire, theft, natural disasters, riots, etc.
 Also provides coverage for household items & valuables.

Commercial Insurance
  Covers business assets, liabilities, and operations.
 Types:
o Fire Insurance – Protects businesses from losses due to fire.

o Marine Insurance – Covers goods in transit (shipping, cargo, etc.).

o Liability Insurance – Protects against legal claims (e.g., Professional Indemnity,

Product Liability).

Importance of General Insurance

✔ Financial Security – Protects against large unexpected expenses.

✔ Risk Mitigation – Covers losses from accidents, natural disasters, and medical emergencies.
✔ Legal Compliance – Mandatory for vehicles and some businesses.
✔ Peace of Mind – Reduces financial stress in crises.

Tax Benefits on General Insurance

Health Insurance Premiums – Deductible under Section 80D (₹25,000 to ₹50,000).

Business Insurance – Premiums paid for business-related insurance can be tax-deductible as
business expenses.

Transferring Assets During Life Time Power of Attorney: Transferring assets during one’s
lifetime is a crucial part of estate planning, ensuring that wealth and properties are managed or
distributed efficiently. A Power of Attorney (PoA) is a legal tool that allows an individual to
authorize someone else to act on their behalf in financial, legal, or medical matters.

Methods of Transferring Assets During Lifetime

Gift Deed

 Used to transfer movable or immovable property to family members or others without

monetary exchange.
 Legal Requirements:
✔ Must be registered if it involves immovable property.
✔ Stamp duty applicable (varies by state).
✔ Irrevocable once executed.
 Tax Implication:
✔ Gifts to relatives (spouse, children, parents, siblings) are tax-free.
✔ Gifts to non-relatives above ₹50,000 are taxable as per the recipient’s income slab.

Joint Ownership
  Adding a joint owner (spouse, child, or family member) to assets like property, bank
accounts, or investments.
 Benefits:
✔ Ensures smooth transfer after death.
✔ Avoids legal disputes.
✔ Joint holders can manage the asset during the owner’s lifetime.

Power of Attorney (PoA): A legal document that gives one person (Agent) the authority
to act on behalf of another (Principal) in financial, legal, or medical matters.

Types of Power of Attorney

Type Purpose Example Use

General Power of Broad powers over financial, property, Managing business, bank
Attorney (GPA) and legal matters. transactions.
Special Power of Selling a property on behalf of an
Given for a specific purpose.
Attorney (SPA) NRI.
Managing assets for a senior
Durable Power of Remains valid even if the principal
citizen suffering from
Attorney becomes mentally incapacitated.
Alzheimer’s.
Medical Power of Authorizes someone to make medical Deciding on critical medical
Attorney decisions if the principal is unable to. treatments.

Importance of Power of Attorney

✔ Helps NRIs manage assets in India.

✔ Useful for senior citizens who may not be able to handle financial matters.
✔ Ensures smooth property transactions.
✔ Avoids legal disputes in case of mental incapacity.

Revocation of Power of Attorney

 A PoA can be revoked anytime by the principal if they are mentally sound.
 Automatically becomes invalid on the principal’s death.

Transferring Assets Post Death: Transferring assets after death is an essential part of estate
planning, ensuring that wealth and properties are passed on smoothly to legal heirs or
beneficiaries. The main tools used for post-death asset transfer include:

1. Nominations
2. Will
3. Trusts

Proper planning helps in avoiding legal disputes, ensuring financial security for family
members, and minimizing tax liabilities.

Methods of Asset Transfer After Death

Nominations

 Definition: A nomination is a process where an asset owner appoints a nominee

(usually a legal heir) to receive the asset after their death.
 Common Assets with Nomination Facility:
o Bank accounts & Fixed Deposits (RBI guidelines)

o Mutual funds & Stock investments (SEBI rules)

o Life insurance policies (IRDAI regulations)

o Property & Real Estate (as per local laws)

Will

 Definition: A Will is a legally binding document that specifies who will inherit assets
after the owner's death.
 Key Features:
✔ Can be changed anytime during the owner's lifetime.
✔ Must be signed in the presence of two witnesses.
✔ Helps avoid disputes among legal heirs.
 Probate:
o If a Will is registered, it ensures faster execution.

o In some cases, a Probate (court approval) may be required.

Legal Aspects of a Will

 Testator: The person making the Will.
 Executor: The person responsible for carrying out the instructions of the Will.
 Beneficiaries: The individuals who inherit assets.

Types of Wills
Type Description

Simple Will Specifies asset distribution clearly.

Joint Will Created by two people (e.g., spouses) and executed after both pass away.

Living Will Specifies medical treatment preferences if the person is incapacitated.

Holographic Will Handwritten by the testator and signed.

Creating a Trust
  Definition: A Trust is a legal entity that holds assets on behalf of beneficiaries.
 Why Choose a Trust?
✔ Avoids lengthy legal processes (probate).
✔ Ensures controlled distribution (e.g., child gets funds only after turning 25).
✔ Protects wealth from legal disputes or creditors.
 Types of Trusts
Revocable Trust - Can be changed or canceled during the creator’s lifetime.
 Irrevocable Trust - Cannot be altered after creation (used for tax benefits).
 Living Trust - Created during the person's lifetime to manage assets efficiently.
 Charitable Trust - Established for philanthropic purposes.

Legal Procedures for Asset Transfer

Method Legal Process

Nominations Death certificate & nominee request to the institution.

Legal heirs submit the Will for execution (probate may be

Will
required).

Trusts Trustee takes control & distributes assets as per trust terms.

Without a Will (Intestate Assets are distributed as per the Succession Act (Hindu,
Succession) Muslim, Christian laws vary).