Nirma University Biotech Vs Manipal University CSE: Should I Go For Biotech in Nirma University or CSE in Manipal University?

Ans: Assessing Your Current Financial Situation

You have built a strong foundation with a solid asset base, consistent passive income streams, and a clear goal to retire by 50. The leased factories and offices are providing a stable income. Additionally, you have a healthy buffer of Rs 5 crore in FDs and a well-structured LIC policy. Your family is your priority, and you are looking to reduce tax liability while increasing passive income.

At 45, you have a few critical years before retirement. This gives you enough time to optimize your financial portfolio and ensure your goals are met with minimal tax burdens. Let’s break down how you can move forward.

Passive Income: Key to Financial Independence
Your current real estate portfolio provides a dependable source of passive income. With the following income breakdown:

Factories leased at Rs 9.30 lakh, Rs 13.80 lakh, and Rs 8.5 lakh annually.
Offices leased at Rs 40,000 and Rs 45,000 monthly.
Your total passive income from these assets comes close to Rs 32 lakh annually. With the land and property market now expensive, your focus should be on diversifying income streams beyond real estate.

Steps to Increase Passive Income

Invest in Debt Instruments: Given your reservations about market-linked instruments like shares and mutual funds, consider debt instruments. Options like Government Bonds, Corporate Bonds, and Debt Mutual Funds can offer steady returns with lower market volatility. These also have tax-efficient structures if held for the long term (3+ years), benefiting from long-term capital gains tax with indexation benefits.

Diversify with International Investments: You could explore international bonds or debt-based mutual funds focused on developed economies. These offer diversification beyond India and can help protect your investments from domestic economic fluctuations.

Sovereign Gold Bonds (SGBs): Since land is expensive, another safe, government-backed option is SGBs. They provide interest along with capital appreciation based on the price of gold. Interest income is taxable, but any capital gains on maturity are tax-free.

Rental Yield Real Estate Investment Trusts (REITs): Though you're cautious about real estate, REITs allow you to invest in a basket of real estate assets. They provide regular dividend income, which is rental yield. You won’t need to worry about maintenance or managing properties. REITs offer steady income and tax-efficient capital appreciation.

Tax Efficiency Strategies
Tax planning is a crucial part of any financial strategy. Given your asset base, current income, and goal to retire in five years, reducing your tax liability is essential. Here are a few steps that can help you achieve that:

Reduce Tax Burden on Real Estate Income

Ownership Structure: If any of your properties are solely in your name, consider transferring them to family members in lower tax brackets (e.g., your wife or mother). This reduces your tax burden as rental income gets distributed.

Invest Through HUF: If you don’t already have one, forming a Hindu Undivided Family (HUF) can help. Income earned through HUF gets taxed separately from personal income, reducing your overall tax burden.

Depreciation Deductions: Claiming depreciation on your factories and offices can significantly reduce taxable income. This applies even though they’re leased out. Have your accountant review your depreciation claims to ensure you’re taking full advantage.

Focus on Tax-Free Investments

Tax-Free Bonds: You can invest in tax-free bonds issued by government-backed entities. The interest earned on these bonds is entirely exempt from tax. Though they offer lower returns (5-6%), they are a good addition to your portfolio for stable, tax-efficient returns.

PPF and VPF: If you haven't maxed out your Public Provident Fund (PPF), it offers tax-free returns, and the interest earned is exempt from income tax. Additionally, consider contributing to a Voluntary Provident Fund (VPF) if available, as it also enjoys tax benefits.

Optimize Your Insurance Policies

You’re currently paying Rs 11.58 lakh annually in LIC premiums. Since these are investment-linked insurance policies, they tend to offer lower returns than other investment options. You may want to reconsider whether you need such a high premium commitment for another eight years.

Steps to Consider with LIC Policies

Review the projected returns upon policy maturity. Compare them with other safe investment options.

Surrender Partially: If the policies are not yielding a high return, you may consider surrendering part of them and reinvesting the surrendered value into better-performing instruments like debt mutual funds or tax-efficient bonds.

Retain Policies Near Maturity: Policies maturing within 3-5 years can be retained, as surrendering close to maturity may not be financially viable.

Build Your Retirement Corpus
Your goal of retiring at 50 is feasible, but your retirement corpus needs careful planning. At retirement, you would want a mix of stable income and wealth preservation to last for the next 30-40 years.

Steps to Build Your Retirement Corpus

Systematic Withdrawal Plans (SWPs): Once you retire, you can shift a part of your fixed deposits and FDs to debt mutual funds. Through an SWP, you can withdraw a fixed sum every month. SWPs in debt funds are tax-efficient since the withdrawals are treated as capital gains, and only a small portion of the withdrawal is taxed.

Avoid Direct Stock Exposure: Since you are risk-averse towards stocks and market-linked investments, avoid direct exposure to equity markets. However, you can consider hybrid funds that invest a portion in equity and debt. This way, you get a balanced return without the full exposure of equity risk.

Annuity as an Option: Once you reach the age of 50, explore annuities that provide a fixed monthly income. These are a secure, low-risk way of ensuring a steady income for your retirement.

Managing Business and Reducing Taxes
You’ve recently started a new business with an annual income of Rs 20 lakh. You should take full advantage of the available tax deductions for business expenses.

Tax-Reduction Strategies for Your Business

Claim All Deductions: Ensure that you claim deductions on all legitimate business expenses, including salaries, rent, utilities, and other operational costs. This reduces your taxable profit.

Depreciation on Assets: If your business involves equipment or machinery, ensure that you are claiming depreciation on these assets to reduce your tax liability.

Opt for Presumptive Taxation: If your business income is below Rs 2 crore, you may qualify for the presumptive taxation scheme. This scheme allows you to declare profits at a fixed percentage of your turnover, which simplifies tax filing and reduces scrutiny.

Estate Planning and Legacy for Daughters
Since you have two daughters and significant assets, estate planning should be a priority. You want to ensure a smooth transfer of wealth, reduce inheritance taxes, and avoid any disputes.

Steps for Efficient Estate Planning

Create a Will: Ensure that you have a clear, legally-binding will in place. This prevents any legal disputes and ensures that your assets are distributed according to your wishes.

Set up Trusts: Consider setting up a family trust. Trusts can help reduce estate taxes and ensure that your daughters inherit your wealth in a structured manner. They also protect the inheritance from creditors.

Plan for Property Transfer: Real estate can be tricky when it comes to inheritance due to capital gains tax. Discuss with a legal expert on how best to structure the transfer of property to your daughters to minimize tax implications.

Finally
You are in an excellent position, with a strong asset base and stable income streams. With some careful tax planning, reallocation of insurance premiums, and a focus on diversification, you can achieve financial freedom by the age of 50.

While your reservations about market-linked investments are valid, not all investment opportunities carry high risk. You can balance your portfolio with safer instruments like debt funds, government bonds, and REITs.

By following a diversified approach, you will be able to reduce tax liability, increase passive income, and secure your family’s future. Consider working with a Certified Financial Planner to ensure all elements of your plan are optimized and aligned with your goals.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in