WEALTH

MAXIMIZATION
WITH
TAX BENEFIT

SUBMITED BY:-
AMIT MALIK
MBA (1ST SEMSTER)
OBJECTIVES OF WEALTH MAXIMIZATION:

 investment can be defined as present sacrifice in anticipation of

future benefit
 investment decision making involves comparison of the
expected future benefits with the costs of the investment
 investors’ ultimate goal is to maximize their wealth by
choosing investments that are worth more than they cost
 the NPV decision rule employs the wealth maximization
concept:

If faced with two competing projects, one that offers an NPV of

$1,501 and another that offers a NPV of $703, the investor would
prefer the one with the largest NPV
Introduction:
It is said that there are only 2 certainties in life:
DEATH and TAXES.
Both are inevitable. We meet both unwillingly.
Unfortunately, the comparisons
ends there.
Death relieves the person from all earthy worries.
Taxation, on the other hand, neither fully kills the
person nor lets him/her live
in peace.
There is one more thing in favor of Death over Taxes
– death does not get worse
every time the budget is presented by the FINANCE
MINISTER!
In the last 20 years, the Income Tax Act was amended
more than
three thousand times!
For all his progressive views, Dr. Manmohan Singh
could not help
introducing 438 amendments within a period of two
years.

Methods for Reducing TAX BURDEN:

There are three method by which you can
reduce your tax burden:
 TAX EVASION
 TAX AVOIDANCE
 TAX PLANNING

TAX EVASION:
Some people reduce the tax burden by deliberately suppressing their
income, or by inflating the expenditure and resorting to various types
of accounting manipulation.
Such underestimation of Income seems to be worldwide
phenomenon.
Tax-evaded money as a percentage of Gross National Product (GNP)
is estimated to be 18% in India, 6% in USA, 2% in UK, 10% each in
Denmark, Italy, Belgium and the former USSR.
In Japan, it is reported that accounts of 2206 companies reviewed by
the Income Tax Department revealed underestimation of income in
all companies except one.
Out of sheer desperation, the government of India has encouraging
Tax Evaders, though indirectly, by announcing various schemes from
time to time.
Such schemes are as follow:

 NATIONAL HOUSING BANK

 GOLD BONDS SCHEME
 VOLUNTARY DISCLOSURE OF INCOME SCHEME
ALL YOU HAD TO DO WAS TO DISCLOSE YOUR INCOME,
PAY 30% TAX ON IT AND YOU GOT 100% PEACE OF
MIND…

TAX AVOIDANCE:
 Some people save on taxes by exploiting the loopholes in the
taxation laws, until they get plugged by the legislature. When MAT
was first introduced for taxing book profits, any companies took
advantages of loopholes in the legislation and provided additional
depreciation to avoid the minimum tax. However, subsequently, the
loophole was suitable plugged through an amendment.
 Similarly, under Section 80HHCof the Income Tax Act.
TAX PLANNING:
There was a time when, Personal Income Tax was as high as 97.5%
and Wealth Tax was 12%.
 But now the taxation scenario has changed.
 People are more willing to pay taxes. They are ready to follow
the regulation as the tax rates have also gone down.
The maximum Income Tax rate is 30% and Wealth Tax is 1%. By
appropriate tax planning, an individual can avail various rebates
thereby reducing his/her tax liability.
 You can reduce your tax liability by arranging your financial
incomes and investments in such a way as to enjoy the maximum tax
benefits by making use of all the beneficial provisions and tax
incentive.
 Which are incorporated in the tax incentives are investment
oriented.
 Tax Planning is both perfectly legal and encouraged by tax
authorities.
A SIMPLE EXAMPLE OF TAX PLANNING:

Rahul Mehta has an income of Rs. 1,86,000. Mehta gets a salary of

Rs. 12,000p.m.,long-term capital gains on account of shares of
Rs. 20,000, and interest from bank deposits of Rs. 22,000
Thus, Mehta’s Gross Income will be as under: Rs.
Salary (Rs. 12,000 X 12 ) 1,44,000
Interest on Bank Deposits 22,000
L.T. Capital Gain on Shares 20,000
Total Gross Salary 1,86,000

 To reduce his Tax Liability, he contributes Rs. 55,000 toward

PF, LIC policies, Mutual funds, etc. eligible for rebate under section
88.
 His taxable income is shown in the table below. As shown in
the table he needs to pay a tax of only Rs. 4,800 on Gross Income of
Rs. 1,86,000.
With Tax Planning, Rahul would had to pay a less Tax.

RS. RS.
a.) Salary 1,44,000
Less: Standard Deduction u/s 16(i) (30,000) 1,14,000
b.) Interest on Bank Deposits 22,000
Gross Total Income 1,36,000
Less: Deduction u/s 80L (12,000)
Net Income 1,24,000
Tax on Rs. 1,24,000 13,800
Less: Rebate u/s 88 @ 20% (11,000)
Tax (A) 2,800
c.) Long Term Capital Gain 20,000
Tax @ 10% (B) 2,000
Total Tax (A) + (B) 4,800
Surcharge Nil
Total Tax Payable 4,800
 Without such Tax
Planning, Rahul
would have had to
pay much higher
Tax…

On the other hand, if he would

not have done Tax Planning he
would have to pay a tax of
Rs. 15,800…

RS. RS.
a.) Salary 1,44,000
Less: Standard Deduction u/s (30,000) 1,14,000
16(i)
b.) Interest on Bank Deposits 22,000
Gross Total Income 1,36,000
Less: Deduction u/s 80L (12,000)
Net Income 1,24,000
Tax on Rs. 1,24,000 13,800
Less: Rebate u/s 88 @ 20% (11,000)
 Tax (A) 2,800
c.) Long Term Capital Gain 20,000
Tax @ 10% (B) 2,000
Total Tax (A) + (B) 4,800
Surcharge Nil
Total Tax Payable 4,800

Rahul’s Total Saving

With the help of Tax
Planning:
Without Tax Planning (TAX Rs. 15,800
PAID)

With Tax Planning (TAX PAID) Rs. 4,800

TOTAL SAVING Rs. 11,000

INVESTMENT:
Now Rahul can invest that amount in any
types of
INVESTMENT… And earn more and more
MONEY …

TYPES OF
INVESTMENT:
 FIXED DEPOSITS
 MUTUALS FUNDS
 SHARES
 ULIPs

FIXED DEPOSITS:
 When you want to Invest your hard
earned money for a longer period of time
and get a regular income income, then
Fixed Deposit scheme is Ideal.
 It is SAFE, LIQUID and FETCHES HIGH
RETURN…
BENEFITS OF FIXED
DEPOSIT:
 Interest paid either monthly or
quarterly.
 The yield or return on a Fixed Deposit is
different from Interest.
 Possible to take LOAN against Fixed
Deposits.
 Bank Fixed Deposit are exempt from
Income Tax u/s 80L.

MUTUAL FUNDS:
 A Mutual Fund is a Pool of Money
contributed by Individual who have similar
Financial Goal.
  The money collected is then Invested in
various SECURITIES such as:
EQUITY
DEBENTURES/ BONDS
MONEY MARKET INSTRUMENTS

Mutual Fund Operation

Flow Chart:

TYPES OF MUTUAL FUNDS:

MAIN FUNCTION OF
MUTUAL FUNDS:
 Buying and Selling of SECURITIES on
behalf of its unit holder
 Enables the Small Investors to shares in
large and diversified portfolio of Assets,
which reduce the risk investment.
SHARES:

In Business and Finance, a

SHARE (also referred to as
Equity Share) of stock means
a share of OWNERSHIP in a
Corporation(Company)…
FEATURES OF SHARES:
 MATURITY
 RIGHT TO INCOME
 CLAIM ON ASSETS
 RIGHT TO CONTROL
 LIMITED LIABILITY
ULIPs:
ULIPs are insurance plans
which provide capital
appreciation by
investments in various
schemes in debt and
equity markets…
ULIPs typically provide
investors the option to
invest in:
 Liquid funds
 Debt or bond funds
 Balanced Funds
 Equity Funds