Sanjivani College of Engineering, Kopargaon

Department of MBA

209- Personal Financial Planning

Unit. No 4-Tax Planning and Personal
Finance Rules

Presented By:
Miss.P.S.Kawle
MBA(Financial Management), Bcom(Cost & Works
Accounting)
Assistant Professor, Dept. of MBA

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 Contents
4.1 What is Tax Deduction? Tax Deductions under the Section and respective
Subsections of : 80C,80D, 80E, 80G, 80 I, Sections 80 JJA, 80QQB,
80RRB, 80TTA, 80U and other relevant sections, Direct Tax Code (DTC).

4.2 Taxation impact on different investment options, Personal tax planning,

Filing IT Returns. Tax management techniques.

4.3 Personal Finance Rules- A thread – Rule of 72 (Double your money) ,

Rule of 114 ( Triple your money), Rule of 144, Rule of 70 (Inflation). 4 %
Withdrawal rule, 100 – Minus age rule, 10,5,3 Rule, 50-30-20 Rule, 3 X

Emergency rule, 40 % EMI rule .

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What is Tax Deduction?

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 What is Tax Deduction?
• A tax deduction is a deduction that lowers a person’s or an organization’s
tax liability by lowering their taxable income.
• Deductions are typically expenses that the taxpayer incurs during the year
that can be applied against or subtracted from their gross income to figure
out how much tax is owed.
• Taxpayers have the option to take a standard deduction or itemize
deductions (if a taxpayer chooses to itemize deductions, then deductions
are only taken for any amount above the standard deduction limit).

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 Eligible investments for tax deductions
1. 80 C- 80C allows deduction for investment made in PPF , EPF, LIC premium ,
Equity linked saving scheme, principal amount payment towards home loan,
stamp duty and registration charges for purchase of property, Sukanya
smriddhi yojana (SSY) , National saving certificate (NSC) , Senior citizen savings
scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds etc

2. 80CCC Deduction for life insurance annuity plan.- 80CCC allows deduction for
payment towards annuity pension plans Pension received from the annuity or
amount received upon surrender of the annuity, including interest or bonus
accrued on the annuity, is taxable in the year of receipt.

3. 80CCD (1) Deduction for NPS- Employee’s contribution under section 80CCD
(1) Maximum deduction allowed is least of the following10% of salary (in case
taxpayer is employee) 20& of gross total income (in case of self employed) Rs
1.5 Lakh ( limit allowed u/s 80C)

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 Eligible investments for tax deductions
4. 80CCD (1b) Deduction for NPS- Additional deduction of Rs 50,000 is
allowed for amount deposited to NPS account Contributions to Atal
Pension Yojana is also eligible for deduction.

5. 80CCD (2) Deduction for NPS- Employers contribution is allowed for

deduction up to 10% of basic salary plus dearness allowance under this
section. Benefit in this section is allowed only to salaried individuals and
not self employed.
6. Section 80D – Medical Insurance-Deduction for the premium paid for
Medical Insurance-(as an individual or HUF) can claim a deduction of
Rs.25,000 under section 80D on insurance for self, spouse and
dependent children. An additional deduction for insurance of parents is
available up to Rs 25,000, if they are less than 60 years of age. If the
parents are aged above 60, the deduction amount is Rs 50,000, which
has been increased in Budget 2018 from Rs 30,000.

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 Eligible investments for tax deductions
7.Section 80E of the Income Tax Act provides provisions for tax deduction on
educational loans. Such loans can be availed for higher studies of the spouse
or children of a taxpayer, with the deduction available only on the interest
component of said loan.
8.Section 80G of the Income Tax Act provides a 50% exemption from paying tax
on donations made to funds or organizations qualifying under the act. This
Section offers tax deductions on donations made to certain funds or charitable
organizations with a qualifying limit not exceeding 10% of Adjusted Gross Total
Income.
9. Section 80TTA of the Income Tax Act allows you to claim deductions on savings
accounts deposits that are held in a post office, bank, or cooperative society.
Exemption sought should be less than Rs. 10,000.
10.Section 80U provides tax deductions for Indian residents who have 40%
disability as specified by the law. There are different criteria for this and a
specific set of procedures for claiming this deduction under Section 80U.

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 Taxation Impact on Different Investment Options

• Employees Provident Fund & Voluntary Provident Fund

• Public Provident Fund
• Life Insurance Premium
• Equity Linked Savings Scheme
• Home Loan Repayment
• Sukanya Samriddhi Account
• National Savings Certificate
• Five years Bank Fixed Deposits
• NABARD Rural Bond
• Unit Linked Insurance Plan
• Payment of Tuition Fee
• Contribution to National Pension System

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 Personal Tax Planning
• The purpose of the personal tax planning is to ensure that you are able to
minimize your tax liability and make productive investments to meet your
financial goals and at the same time claim deductions and exemptions without
making any tax evasion.
• Tax evasion and tax planning are two very things and as a tax payer you must
ensure that whatever you do to save on taxes should be legitimate so as to
avoid paying any penal charges later.

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 Filling IT Return
• Income Tax Return (ITR) is a form which a person is supposed to submit to the
Income Tax Department of India. It contains information about the person’s
income and the taxes to be paid on it during the year. Information filed in ITR
should pertain to a particular financial year, i.e. starting on 1st April and ending
on 31st March of the next year
• Income can be of various forms such as :
1. Income from salary
2. Profits and gains from business and profession
3. Income from house property
4. Income from capital gains
5. Income from other sources such as dividend, interest on deposits, royalty
income, winning on lottery, etc.
• The Income Tax Department has prescribed 7 types of ITR forms - ITR-1, ITR-2,
ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 and applicability of the form will depend on the
nature and amount of income and the type of taxpayer.

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 Below is the list of ITR forms which are
most commonly applicable:
Particulars Applicability
ITR-1 (also called as Sahaj) To be filed by resident individuals having total income upto
₹ 50 lacs from following sources :
1. Salary
2. One house property
3. Other sources excluding winning from lotteries and
income from horse races
4. Agricultural income upto ₹ 5,000
ITR-2 To be filed by Individuals and HUFs who are not eligible to
file form ITR-1 and don’t have income from profits and
gains from business or profession
ITR-3 To be filed by Individuals and HUFs having income from
profits and gains from business or profession
ITR-4 (also called as Sugam) To be filed by resident individuals, HUFs and firms (other
than LLP) who are residents having total income upto ₹ 50
lacs and having income from business or profession
computed under section 44AD, 44ADA or 44AE

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 Personal Finance Rule- Rule of 72
• No. of yrs required to double your money at a
given rate, divide 72 by interest rate
• E.g., if you want to know how long it will take
to double your money at 8% interest, divide 72
by 8 and get 9 yrs
• At 6% rate, it will take 12 yrs
• At 9% rate, it will take 8 yrs

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 Personal Finance Rule- Rule of 114
• Rule of 114 can be used to determine how long it will take an
investment to triple, and the Rule of 144 will tell you how long it
will take an investment to quadruple.
• For example, at 10% an investment will triple in about 11 years
(114 / 10) and quadruple in about 14.5 years (144 /10)

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 Personal Finance Rule- Rule of 4 %
Withdrawal
• Corpus Required = 25 times of your estimated Annual
Expenses
• Eg- if you wish to retire at 50 & annual expense at that
time is 500,000, then required corpus is 1.25 Cr
• Put 50% of this into Debt & 50% into Equity.
• Withdraw 4% every yr, i.e. 5 lacs.

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 Personal Finance Rule- 100 – Minus age rule
• This rule is used for asset allocation. Subtract your age from 100
to find out, how much of your portfolio should be allocated to
equities
• Suppose your Age is 30 so (100 - 30 = 70)
• Equity : 70%
• Debt : 30%

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 Personal Finance Rule- 10-5-3 Rule
One should have reasonable returns expectations
post taxes
• 10% Rate of return - Equity/Mutual Funds
• 5%- Debts ( Fixed Deposits or Other Debt
instruments)
• 3% - Savings Account.

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 Personal Finance Rule- 50-30-20 Rule.

*50-30-20 Rule - about allocation of income to

expense*
• Divide your income into
• 50%- Needs (Groceries, rent, emi, etc)
• 30%- Wants (Entertainment, vacations, etc)
• 20%- Savings (Equity, MFs, Debt, FD, etc)

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 Personal Finance Rule- 3X Emergency Rule*

• Always put at least 3 times your monthly income

in Emergency funds for emergencies such as Loss
of employment, medical emergency, etc.
• In fact, one can have around 6 X Monthly
Income in liquid or near liquid assets to be on a
safer side

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 Personal Finance Rule- 40% EMI Rule
Never go beyond 40% of your income into EMIs.
• Say you earn, 50,000 per month. So you should
not have EMIs more than 20,000.
• This Rule is generally used by Finance
companies to provide loans. You can use it to
manage your finances.

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 Personal Finance Rule- Life Insurance
Rule
Always have Sum Assured as 20 times of your Annual
Income
• 20 X Annual Income
E.g. Say you earn 5 Lacs annually, u shud atleast have 1
crore insurance by following this Rule

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Thank you

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