Tax Planning for the next year for salaried people

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

People generally believe that when it comes to the Salaried class, there is hardly any hope for tax savings. This observation however, is not entirely true.

The salary that an employee receives is in reality a combination of many types of income that are actually categorized differently according to the Income Tax Act, and your salary constitutes the following things:

  • Basic Salary
  • Different Allowances
  • Different Perquisites (Perks)
  • Other incomes not included in this list such as Commission, incentives, etc.

Most people do not have the knowledge that leaving aside the component of Basic salary, other components in the salary slip such as allowances and perks can enjoy tax exemption, though of course up to a certain limit. In fact, every employee, in consultation with his employer, can make alterations to his pay package so that the benefits from tax gain may be maximized.

Employees should therefore gain some knowledge regarding these simple tax gains and learn how to make use of tax exemption policies related to perks and allowances to gain as much they can instead of unnecessarily paying a high amount of taxes.

Employer’s Contribution to NPS eligible for deduction under 80CCD(2)

Section 80CCD(2) is a new section that not many people know about, and states that any contribution made by the employer towards NPS can be claimed for deduction by the employee. The two key restrictions are that the contribution must be made by the employer, and it can’t exceed 10% of your salary. Some employers like Wipro have already included 80CCD(2) them in their salary structure, so if your employer contributes to NPS then you should take advantage of 80CCD(2) as well.

The good thing about this is that the NPS contribution amount is counted in excess of the amount of INR 1,00,000 as mentioned under Section 80C, 80CCC and 80CCD.

Let’s now discuss the exemptions available with respect to common day to day allowances and perquisites.

HRA (House Rent Allowance):

The amount of HRA that an employee receives enjoys tax exemption up to the following limits

  1. 50 per cent of the employee’s salary when the employee resides in either of the four metropolitan cities, in other cases 40 per cent
  2. Any rent that is more than 10 per cent of the total salary of the employee
  3. Actual amount of HRA received

Transport Allowance:

The amount of transport allowance that an employee spends to get to his workplace from his place of residence enjoys a tax exemption of up to a limit of Rs. 800 per month.

Rent free furnished or unfurnished accommodation:

When an employer provides his employee with rent free furnishes or unfurnished accommodation it is considered a perk and employees can enjoy exemption from taxes up to the following limits

  1. If the said accommodation is in a city, the population of which exceeds 25 lakh, the tax exemption can be 15 per cent of the salary
  2. If the said accommodation is provided in a city, the population of which is less than 25 lakh but more than 10 lakh, it is 10 per cent of the salary amount
  3. If the said accommodation is provided in any other place with a population that is less than 10 lakh it is 7.5 per cent f the total salary

In the event of the furniture too being made available by the employer, 10 per cent of the employee’s salary is assumed to be the value of the furniture when the furniture is owned, and in the case of hire, the actual hire charges that the employer pays is considered.

The amount contributed by an employer as premium paid towards the group insurance schemes of the staff members or towards recreational amenities, including services provided by clubs etc. for the benefit employees is always considered to be under the Tax Exempt category.


The above information has been relayed so that employees understand the various ways through which they can save on the taxes they pay. With the help of these different exemptions, employees can alter their existing salary structure in such a way that the optimum tax benefits can be availed by employees. Employees can try to confine the allowances within the limits set for exemption while the individual’s tax plans can also be prepared in relation to the valuation of the perks or perquisites.

Employees should always ensure that the exemption limits set under 80C and 80D are always used to their maximum potential too.

Follow up on Gift Tax Post – Clubbing of Income

A few days ago Aashish Ramchand had a guest post here on income tax on gifts, and Manikaran Singal had the following comment on the post.

Manikaran Singal November 22, 2012 at 10:58 am [edit]

Just to add , Gift tax provisions has to be read in conjunction with the clubbing provisions which are detailed u/s 60-64 of income tax act 1961. These sections deal with the cases where tax payers make an attempt to reduce the tax liability by transferring / gifting their assets in favour of family members or by arranging their sources of income in such a manner that tax incidence falls on others, but in actual the benefit of income enjoyed by them. one needs a proper tax planning at every life stage by understanding tax provisions simultaneously. I’ve written a series of articles on tax planning at different life stages, hope it benefit the readers
Even one article on FPGI by me also throws light on this issue

I thought this was a very useful comment as the original post talks about the tax implication of the gift tax money but then when you read about clubbing provisions, you get to know about the tax implications of the earnings arising out of the money that the gifted money generates.

This is an important thing and I think reading Mani’s gift tax post gives a very good perspective about the whole process of gifting and then the tax provision on the incomes arising out of that.

Gift Tax and Clubbing of Income

The main thing that stood out for me with respect to gift tax is that if you gift money to your minor child, spouse or daughter in law, and then they invest and earn more than Rs. 1,500 in a year then that income will be clubbed with your income and you will be taxed on it according to your tax rate.

Here is the whole post.

Spreading the Income: Golden Rules to Save Tax

Photo Credit:


Income Tax on Gifts from NRIs and Relatives in India

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

Generally, gifts are not regarded as Income chargeable to tax. However by virtue of Section 56(2) any sum of money exceeding Rs. 50000 received without consideration by an individual or an HUF from any person is chargeable to tax as income under other sources subject to exclusions as below:

  1. Receipts on occasion of marriage of the individual
  2. Receipts under a will or inheritance
  3. Receipts received from a relative.

Since 1/10/2009, Section 56(2) has been amended and the scope of gifts and will include even immovable properties or any other property besides sums of money under its ambit.

Gifts that are not taxable at all are those that are received from relatives. Relatives are defined by the following relationships of the individual:

  1. Parents
  2. Parents siblings and their spouse
  3. Siblings
  4. Spouse of siblings
  5. Daughter and son
  6. Spouse of daughter and son
  7. Spouse
  8. Spouse’s parents
  9. Spouse’s siblings and their respective spouse.

Even NRIs are covered as long as they fall in the category of relatives. Therefore an individual Indian resident can receive a tax free gift from an NRI as long as he/she is that individuals relative. Any amount can be received as a gift from a relative. Also the purpose for which the gift is received from a relative is inconsequential as it is completely tax free. Thus a gift received can be used for any purpose ranging from purchasing shares to buying property to even simply keeping it with the bank.

Note on gifting on immovable properties

There is a valuation aspect involved in gifting of immovable properties:-

  1. If the property is gifted without any consideration then if the stamp duty value exceeds Rs. 50000/-, stamp duty value will be taken
  2. If the property is gifted for a consideration, then the actual value of the property will be taken

In case of other properties:

  1. If gifted without consideration and fair market value exceeds 50000, then the fair market value will be taken as the final value
  2. If gifted for a consideration and the FMV less consideration is greater than 50000, then the FMV less consideration amount will be taken as the value of the gift.

As mentioned earlier NRIs can also give gifts to resident Indians. Therefore, It is important to understand the meaning of an NRI as per the IT act.

An individual will be treated as a non resident in India in any previous year if he fulfils any of the following two conditions:

  1. he/she is NOT in India in that year for period or periods amounting in all to 182 days or more, or
  2. Having within the four years preceding that year NOT been in India for a period or periods amounting in all to 365 days or more, and has NOT been in India for 60 days or more in that year.

Can one person open two PPF accounts?

Srinivas posted the following question a few days ago:


SRINIVAS September 17, 2012 at 10:48 pm [edit]

Can an exclusive article be written on PPF?. Actually, there is lot of confusion on this, despite the popularity of the product . The question is ,whether one individual can open two accounts -one in his name and the other on the name of minor child- and contribute Rs.100000/- to each of the accounts? everybody talks about availability of tax exemption upto Rs.100000/-, but nobody explicitly conforms that contribution can be made to multiple accounts exceeding Rs100000 and claim tax exemption upto Rs1.0 lakhs only.

I think there are two questions here, and I’ll try to break this up and answer each one individually.

1. Can one person open more than one PPF account?

No, you can’t, you can only have one PPF account for yourself except if you want to open one as a guardian of your child.

2. If I can’t open multiple accounts then can I open one for my minor children as their guardian?

You can open another account for your minor children as their guardian but that doesn’t mean that the tax deduction doubles, that still remains applicable as an individual.

As far as I know, it doesn’t double the amount that you can put in these two accounts, so you can’t put Rs. 2 lakhs in the two PPF accounts, for the purpose of calculating the limit, they are treated as one account only. If someone knows this to be different then please leave a comment.

The husband and wife both can’t open an account on the name of the same child, and grandparents can’t open an account for their grandchildren.

Other Questions

Other than these two questions, I see that PPF has a thread on Jago Investor discussion forum and there they have dealt with some questions like how much this money will amount to after 15 years and that’s a good link for further reading.

Capital gain exemptions – what are they applicable on and how are they applied?

This article is written by Aashish Ramchand, a Chartered Accountant by profession. Aashish is the co-founder of He also has completed his CFA Level I (American) and is very passionate about writing articles on taxes and tax advisory. He can be reached at

Capital Gains on assets are a result of a higher sale consideration than the cost of acquisition of the assets.

Short term capital gains are taxable at 15% in case of shares and equity oriented mutual funds and at 30% (maximum marginal rate) in case of other taxable assets.

On the other hand, long term capital gains on shares and equity oriented mutual funds are exempt from tax and are taxable at 20% in case of other assets such as flat, building, gold, art etc.

The Income tax act has come out with certain exemptions from taxable long term capital gains.

Section 54:- Under this section, an Individual or an HUF (Hindu Undivided Family) can get an exemption on the capital gains earned on residential house property. As per this section, the individual is required to purchase another residential house property within 1 year prior to the sale or within 2 years from the sale of the erstwhile residential house. In case of construction, the new residential house property must be constructed within 3 years from the sale of the original house property.

Section 54F:- As per this section, an individual or an HUF can get capital gains exemptions from assets other than residential house property (exemption for residential house property is covered under section 54). To claim the exemption, an individual or HUF needs to invest the sale proceeds of the old capital asset in another residential property. The timelines remain the same as covered in section 54 i.e. 1 year prior to or within 2 years from, the sale of the capital asset (other than the residential house property). In case of construction of the residential house property, the time limit is 3 years.

Section 54EC:- In this section, any person (not only individual and HUF’s) can get exemption from long term capital gains even if the capital gains are not invested in a residential house property. To gain exemption from capital gains, an individual or an HUF can invest the capital gains amount in NHAI (i.e. National Highway authority of India) or REC (Rural Electrification Corporation) bonds of the Government. The investment limit in these bonds in capped at Rs. 50 lakhs. The time limit to invest in these bonds is 6 months from the date of sale of the original capital asset.

Section 54B:– As per this section, an individual or HUF can get exemption from long term capital gains earned on sale of agriculture land. This pertains to sale of only urban agricultural land as sale of rural agriculture lands are completely exempt from tax. To claim the exemption, the assessee needs to invest the capital gains earned in another urban agricultural land. The time limit for investment is 2 years from the date of sale of the original urban agricultural land.

Tax liability on money you get on retirement

I got the following question from a reader the other day, and I’m seeing if I can crowd source the answer and verify some things that I think are applicable in this case.

Here is the question:

I am an avid reader of your blog. I am working in a leading software firm.
I have a question. I will be superannuating next year after completing 55 years as per our company policy. I should have a retirement corpus of around 50 lacs which includes my savings in LIC plus the retirement benefits like PF, superannuation and gratuity. I do not have any loan liability. Assuming that I keep this money in bank FDs, thus earning approx. Rs.4.5 lacs as interest at the rate of 9% p.a. I request your answer to the following questions:

1. What will be my tax liability with the above income?
2. Since there will be no salary income, should I, as a tax payer, intimate the Tax Authorities about my retirement or will my employer do this? (my case is not a resignation but a superannuation). If so, pl. suggest me the website where any particular format is avaiable.
3. My income will be within Rs.5 lacs p.a., – should I file a tax return?
4. Is keeping the entire funds in bank FDs safe?

I would appreciate your response to do my financial planning.

First of all, I’m not sure what the tax treatment is for the lump-sum that you get on retirement. I’d imagine it depends on the source, but even then I don’t know how to break it up into different categories.
Now, to the responses to the questions.
1. At 4.5 lakhs, you will fall under the Rs. 2 to 5 lakhs tax bracket and you will be liable to pay 10% tax on the income above 2 lakhs. There are tax deductions you can get to reduce your tax liability but if you don’t do anything then you will have to pay taxes.
2. Even though you don’t have a salary income, you have income from other sources, and you will have to file tax returns.
3. Yes, because of the reasons stated above.
4. Well, this is a bit harder to answer, I think in general the big banks are safe and as long as you spread your fixed deposits in a few different banks you should be alright. However, if there were a problem with any banks, I think the general public will be the last to know and I certainly don’t have any insights on any problem banks.

What do you think about this situation? Anything you want to add or correct?

Introduction to HUFs

This post is written by Shiv Kukreja

The Hindu Undivided Family (HUF) structure is a very effective way to save tax and a lot of people are eligible to create HUFs but somehow there is very little awareness about it.

I think that’s because most of us don’t know how easy it is to create an HUF. In fact, it is as easy as getting married. I would say it might be difficult for somebody to get married but it is very easy to create an HUF.

An HUF is automatically constituted the moment a person gets married and completes seven pheras around the holy fire and they get married.

That means a Hindu male needs to do nothing to get an HUF created but to get married to a Hindu female. It is one marriage gift that all Hindus get from the government or Hindu Law. It is not necessary to have children to create HUF.

Sikhs, Jains and Buddhists can also create an HUF under the Income Tax Act even though they are not governed by the Hindu law.

What is an HUF?

An HUF is a separate and a distinct tax entity. The income of an HUF can be assessed in the hands of the HUF alone and not in the hands of any of its members. The senior most member of the family who manages the affairs of the family is called the Karta. Minimum two people (at least one male member) are required for the HUF to come into an existence.

A coparcener is a member of the HUF, who by birth acquires an interest in the joint property of the family, whether inherited or otherwise acquired by the family.

Coparceners have a right to claim partition of the HUF. Other members of the family cannot ask for a partition of the HUF and have no right to claim a share in the family property. Coparceners consist of a Karta and his lineal descendants within the following four degrees:

  • 1st Degree: Holder of the ancestral property for the first time – Karta
  • 2nd Degree: Son(s) and Daughter(s) of the Karta
  • 3rd Degree: Grandson(s) of the Karta
  • 4th Degree: Great Grandson(s) of the Karta

A daughter, after her marriage, would remain a coparcener in her father’s HUF and at the same time, can become a member in her husband’s HUF. In the event of the death of the Karta and in the absence of any male member, two females can continue to run the HUF and the senior female can take over as the Karta. A son can create his own HUF while remaining a coparcener in his father’s HUF.

Capital Infusion: Here comes the most difficult part for someone to start the HUF operating – generating capital for the HUF.

One should not contribute his own personal assets or funds into the HUF as any income generated from these assets or from its investment will be clubbed into Individual’s personal income under Section 64 (2) of the Income Tax Act and hence taxed accordingly.

But there is a way out – one can transfer his personal assets or funds into the HUF if the income generated from these assets or from its investment results in a tax free income (like tax free bonds) and hence there is no scope of any tax liability due to clubbing of taxable income.

This tax free income can then be reinvested to earn even taxable income and eventually all of the income would fall out of the clubbing provisions.

Gifts or inheritances meant for the benefit of all the members of a family should be diverted specifically to the HUF. HUFs are liable to pay tax if the value of the gifts taken from the strangers exceeds Rs. 50,000. Though there is a limit for an HUF to take gifts from the strangers, gifts of a higher value can be taken from the relatives, who are not the members of the HUF.

Here is the list of people who fall in the category of relatives:

  • Karta’s Wife
  • Brother(s) or Sister(s) of the Karta
  • Brother-in-law or Sister-in-law of the Karta
  • Immediate Uncle(s) or Aunt(s) of the Karta
  • Immediate Uncle-in-law or Aunt-in-law of the Karta
  • Lineal ascendant or descendent of the Karta or Karta’s wife

A father can also gift money to his son’s HUF but need to specify in the gift deed that the gift has been made to the son’s HUF and not to the son as an individual. Ancestral property can be an asset of the HUF and an income earned on this property can be classified as the income of the HUF. If any of these ancestral properties are sold, the money received on such a sale should be transferred to the HUF.

How to get started with the HUF?

Once there are two eligible family members ready to operate an HUF, the first thing to do is to apply for a PAN card in the name of the HUF and have a separate bank account opened.

For a PAN application, an affidavit by the Karta stating the name, father’s name and address of all the coparceners on the date of the application is considered sufficient as the document proof of identity of the HUF. Also, the identity and address proof of the karta will be treated as the address proof of the HUF.

Then start seeking for gifts or inheritances from relatives or strangers, keep on infusing your own capital, transfer family’s assets/properties to the HUF and do all the possible things that you can keeping in mind the clubbing of income provisions.

Here is a link that contains a sample HUF deed.

Sections/Provisions under which HUFs can claim Deduction/Exemptions and Save Tax

As already mentioned, an HUF is a separate and a distinct tax entity and just like any other Resident Individual assessee, it also enjoys a basic tax exemption of Rs. 2,00,000. All other tax slabs are also exactly same as for an Individual. Here is a useful link from Bemoneyaware that shows the TDS rates for Individuals and HUFs.

Section 80C: HUFs can claim tax exemption under Section 80C by investing money in ELSS, ULIPs, traditional insurance plans, NSC or 5 year Bank FD with a scheduled bank. Principal repayment on a housing loan taken by the HUF can also be claimed under this section. HUFs are not allowed to invest in PPF anymore.

Section 80D: Members of the HUF can take a family floater policy and make the HUF pay for its premium and enjoy the tax benefit too.

Section 80DD: If any dependant member of the HUF is normally disabled (not less than 40% disabled) and the HUF makes an expenditure for the medical treatment, training and rehabilitation of that disabled member, then the HUF can claim a deduction of Rs. 50K under this section. If the condition is of a severe disability (equal to or more than 80%) then the HUF can claim a deduction of Rs. 100,000.

Section 80TTA: Interest earned on the money deposited in the savings bank account up to Rs. 10,000 p.a. is exempt for an HUF also.

Section 24 (b): Interest on Housing Loan: If an HUF takes a loan for buying out a residential property, it can claim a deduction of Rs. 150,000 in respect of Interest on Housing Loan.

30% Standard Deduction on a Rented Property: An HUF can claim a standard deduction of 30% from the rental income it earns by letting out a property.

Capital Gains on a House Property: Tax on Capital Gains made by selling a house property can be saved if the HUF invests the proceeds into buying another property within two years from the sale of the said property. The money can also be invested in Capital Gain bonds offered by REC and NHAI with a lock-in period of 3 years. The interest income on these bonds would be considered a taxable income of the HUF.

The table below shows how the income of an individual in the 30% tax bracket can be split between two entities to lower the final tax outgo:

Introduction to HUF
Introduction to HUF

Some Other Important Points

  • Karta can be paid a reasonable salary for his services of managing day to day affairs of the HUF. The salary will be considered his personal income but at the same time it is deductible as an expense from the books of the HUF.
  • Only one member or coparcener cannot form an HUF. There have to be at least two members and at least one male member.
  • HUF can keep its normal functioning even with two females after the death of its sole male member.
  • The Hindu Succession (Amendment) Act 2005 has given equal rights to male and female in the matters of inheritance as a result of which a daughter now also acquires the status of a coparcener.
  • An HUF cannot become partner in a firm but a Karta can.

These were some important aspects when it comes to creating an HUF and everyone, who is eligible to create an HUF and pays taxes, should strongly consider this option as it is a very efficient and good way to save tax.

How to file your taxes online using the Income Tax India website?

Vikrant commented on the Perfios post last Friday on how easy it was to register and file taxes on the Income Tax India website if you have income from only one source viz. salary, and that it took him only 10 minutes to file his own taxes this way.

I’m not familiar with this process, so I asked him if he would share his experience and he replied very promptly with the steps involved in this process.

Here are the instructions that he gave me (slightly edited).

It’s very simple, especially for people like me who have only one source of income which is salary income.

1.  Go to

2.  You need to register first, and that’s done by clicking on the Register link that’s present on the right side of the screen, and supplying your PAN.

3.  Once registered, enter your PAN number and password to login.

4.   After you login, you will find a page where you can choose to file return for this year or previous year, Let’s take an example of this year. When you point your mouse to E-Filing A.Y.2012-13 it would prompt: “Individual, HUF” as shown below.

Click on the “Individual, HUF” link.

5. The next page has a set of instructions on which form you should use for your tax filing. These are fairly detailed instructions, and you can easily make out which form you should use based on the details given there.

Here is a screenshot of the instructions.


If you look at this page, it will tell you what which ITR form you need to use. Based on the kind of income you have, you will need to use the respective form like ITR1 , ITR2 and so on.

As I said, I will use ITR 1 as example as I come under Income from Salary/Pension .

6.  Click on the Excel Utility (Version 1.0) for ITR 1 and similarly for other ITR whichever is applicable to you.



7.  Fill this form based on the information present in form 16 and validate that.

8.  Once you have filled the form (there are 4 pages you need to fill; all those which are applicable). Click on validate and then click on Generate. This will generate a XML file which would be saved automatically in the same location where you had saved the excel file that you downloaded.

9.  Once the XML is generated, all you need to do is, click on the > Select assessment year on the left hand side of the web page and select the year assessment year, which would be AY12-13 for this year.

10.Once you click on AY 12 – 13  you will find this page.



Select the option accordingly, like I have done here and click next

11.Once you click next you will find another page that looks like this.



Click on Choose file and select the XML file  that got saved when you generated the XML. And click upload.

12. You will get an email from income tax office that will have a PDF file called ITRV. Take a print out, sign on the form and send it to the address mentioned on the file by ordinary post or speed post.

It’s all done! It’s a very simple process if you have income from only one source.


Vikrant’s instructions are fairly detailed and it looks like a simple process by the looks of it. Many thanks to him for sharing these with everyone here!

Has anyone else tried this and if so what is your experience?

Ideas on Tax Saving Schemes for First Time Tax Payers

I’ve seen a lot of comments in the last month or so that are from people who will be paying taxes for the first time this year.

There’s a fair bit of confusion on what to do and what option to choose, so I’m writing this post with some ideas with how someone who is going to pay taxes for the first time could approach tax saving schemes.

First of all – you will have to pay tax if you earn above the taxable limit – there’s just no way around it, so stop wasting your energy in trying to devise a method which gets you to avoid this.

There are some ways in which you can reduce how much tax you’re liable for and that’s where investments come in.

There is a section in the Income Tax Act which lists down certain expenses and investments that will enable a person to reduce their taxable income and as a result of that pay less tax.

This section is called Section 80C and the graphic on this page tells you what instruments you can invest in, what is their lock in period and what returns you can expect.

If you have some education loans or housing loans then you can use that to save tax, but if you don’t have that then you can invest in either mutual funds, fixed deposits, post office schemes or insurance products to save tax.

Since this is the first time you’re doing this and it’s rather late in the day to understand the nuances of these schemes properly there are two things you can keep in mind to help you make a quick decision.

First is that ELSS mutual funds have the lowest lock in period of just 3 years among these schemes and also happen to be the only equity product in this list. This means they are mutual funds that invest in shares and there is absolutely no guarantee with them.

Your investment could halve after 3 years, or it could double – it depends on the market, and there are absolutely no guarantees.

The second thing to keep in mind is that if you’re not comfortable taking this risk then you can opt for a fixed income product where the returns are defined at the beginning of the term and you can expect the principal plus interest to be paid out to you regularly. Among these options – a tax saving bank fixed deposit is probably the easiest for you to set up and the yields are as high (if not higher) than the other options.

The limit under 80C is Rs.1 lakh and if you exhaust this limit then you can invest an additional Rs. 20,000 in tax saving infrastructure bonds and reduce some more of your taxable salary.

Finally, if you are under the 10% tax slab and expect some big expenses in the near future then it may not even make sense to block your money in these products. Just pay the tax and keep your money in the bank to meet the expenses.

Keep these things in mind while deciding where to invest to save tax, and leave a comment if you have any questions.

SBI Tax Advantage Fund Series II: 10 Year Closed Ended ELSS Fund

SBI Mutual Fund has come up with a new fund offer for SBI Tax Advantage Fund Series II which is a 10 year closed ended ELSS (Equity Linked Savings Scheme) fund.

It’s an equity mutual fund which means that it will invest primarily in shares listed on the stock exchange. It’s an ELSS which means that it will give you tax benefits under section 80C. So, the money you invest in this fund will be reduced from your taxable income thereby reducing your tax liability.

The NFO has opened for subscription on December 22nd 2011, and will close on March 21st 2012. The minimum application is Rs. 500, and you can invest in multiples of Rs. 500 after that. Since this is a closed ended fund – you will be able to buy it only during the NFO period, and once the NFO closes units won’t be available for purchase.

The fund has a dividend and growth option, and since it is an ELSS fund – your fund will be locked in for 3 years in which period you won’t be able to redeem it.

The information document says that redemption or repurchase facility will be available after the 3 year lock in period. I have no experience buying into closed ended funds, so I don’t know how the redemption of these work – if anyone has any practical experience or insights on this then please do share that in comments.


SBI Tax Advantage Series II
SBI Tax Advantage Series II

This fund doesn’t offer any differentiation from the plenty of other ELSS funds that exist today, and I was hoping that they offer a lower expense ratio to lure in customers but that’s not the case.

The recurring expenses are going to be 2.50% for the first 100 crores of assets, 2.25% for the next 300 crores, 2.00% for the next 300 crores, and then 1.75% for the balance. I see that the series I of this fund has an asset under management of Rs. 550 crores so that could be a potential pointer on how much Series II could amass, and based on that it looks like the expenses will be relatively high. Expenses of the fund eat into the returns so you want them to be as little as possible.

I think ELSS funds are a great way to utilize the 80C limit because they are equity instruments and have the shortest lock in period among the 80C options, but for this particular fund – I don’t see any reason to invest in it at all.

There are plenty of other ELSS funds that have a fairly long track record, have lower expenses and buying one of those makes more sense to me than getting into this one.

This post is from the Suggest a Topic page.