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Mahesh

Mahesh Padmanabhan  |124 Answers  |Ask -

Tax Expert - Answered on Jun 06, 2023

Mahesh Padmanabhan has specialised in payroll, personal and corporate taxation for more than two and a half decades, enabling him to provide practical, realistic and correct advice to his clients.
He is a member of The Institute of Chartered Accountants of India and has a degree in cost accounting from the Institute of Cost Accountants of India.
He is also a qualified information systems auditor. ... more
RAJIV Question by RAJIV on May 26, 2023Hindi
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Hello sir I m a salaried person of amount Rs. 10 lacks/ anum, what is the correct way to use of my salary with minimise the tax liability also. I am investing only LIC PPF,MF, & STOCKS ONLY & interested in property & gold. Also suggest the percentage by allocation in DIFFERENT tools with expense also.

Ans: Hi Rajiv
You may opt for the new tax regime to minimize your tax outgo there by freeing up your options to invest wisely instead of from tax saving perspective. You would need to chat with a financial planner (also available on Rediff Gurus) to understand the way forward on meeting your investment goals
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Mutual Funds, Financial Planning Expert - Answered on Aug 12, 2024

Asked by Anonymous - Aug 05, 2024Hindi
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Hello Sir I am 44 years old & my monthly salary is 1.22 Lacs.. Which tax regime should I choose considering there is no Home, education or Battery car loan for me.. I invest under Sec 80cc appriox. 1.5 Lacs a year
Ans: At 44 years old, you have a monthly salary of Rs 1.22 lakhs, and you’re making sound financial choices. You invest Rs 1.5 lakhs annually under Section 80C, which is a good start for your tax planning. You have no home loan, education loan, or battery car loan, which simplifies your tax planning decisions.

Choosing the right tax regime depends on your financial situation, goals, and the deductions you can claim. Both the old and new tax regimes have their advantages, and it's crucial to assess them based on your specific scenario.

Overview of the Old Tax Regime
The old tax regime allows you to claim various deductions under sections like 80C, 80D, 80G, and others. Since you are already investing Rs 1.5 lakhs under Section 80C, you’re making use of this regime's benefits. The old regime is beneficial for individuals who can claim substantial deductions. Here’s why it might work for you:

Deductions Under Section 80C: This section covers investments like PPF, EPF, life insurance premiums, and certain mutual funds. Your Rs 1.5 lakh investment here reduces your taxable income directly.

Health Insurance Deduction Under Section 80D: If you have health insurance, you can claim a deduction on the premium paid, up to Rs 25,000 for yourself and an additional Rs 25,000 for parents.

Standard Deduction: A standard deduction of Rs 50,000 is available under the old regime, further reducing your taxable income.

The old regime is ideal if you can maximize your deductions. Since you already have Rs 1.5 lakhs invested under Section 80C, you are on the right track. However, let’s explore the new tax regime to understand if it might suit you better.

Overview of the New Tax Regime
The new tax regime offers lower tax rates but doesn’t allow most deductions, including the Section 80C investment. The rates are structured to provide immediate tax relief without the need for extensive tax planning. Here’s how it could work for you:

No Need for Deductions: The new regime simplifies tax filing as it doesn’t require you to claim deductions. This can be beneficial if you prefer a straightforward approach without the need to track various investments and expenses.

Lower Tax Rates: The tax slabs under the new regime are broader and come with reduced rates. For someone earning Rs 1.22 lakhs per month, you might find yourself in a lower tax bracket, paying less tax overall if you don’t have substantial deductions to claim.

Flexibility in Spending: The new regime doesn’t tie you down to specific investments to save tax. This gives you the flexibility to spend or invest your money according to your financial goals rather than for tax-saving purposes.

Comparing the Two Regimes
Choosing between the old and new regimes involves comparing your taxable income under both. Here’s a general assessment based on your situation:

Old Regime: Your Rs 1.5 lakh investment under Section 80C reduces your taxable income significantly. If you have other deductions, like health insurance under Section 80D or donations under Section 80G, the old regime might be more beneficial. You also benefit from the standard deduction of Rs 50,000.

New Regime: If you prefer not to claim deductions or don’t have significant ones beyond Section 80C, the new regime might be simpler and potentially more tax-efficient. The lower tax rates could outweigh the lack of deductions.

Strategic Considerations
Here are some key points to consider when choosing your tax regime:

Evaluate Future Investments: If you plan to increase your investments under Section 80C or explore other deductions, the old regime may continue to benefit you.

Simplify Your Tax Filing: If you find tax planning cumbersome and prefer a simpler approach, the new regime offers that ease. However, you might pay slightly more in taxes if you forgo your deductions.

Long-Term Planning: Consider your long-term financial goals. If you plan to invest more for retirement or your children’s education, sticking with the old regime and maximizing your deductions might be the better choice.

Review Annually: Tax laws and your financial situation can change. It’s wise to review your choice annually and switch if necessary.

Final Insights
Your choice of tax regime should align with your financial strategy. The old tax regime is advantageous if you can utilize deductions effectively, particularly the Rs 1.5 lakh you’re already investing under Section 80C. This approach rewards disciplined saving and investment, which supports long-term wealth creation.

The new regime, while simpler, may not be as tax-efficient if you can claim substantial deductions under the old regime. However, it offers flexibility, allowing you to allocate funds without the pressure of tax-saving investments.

Given your current scenario, the old regime might be more beneficial if you can continue to optimize deductions. If simplicity is more important and you prefer not to focus on tax-saving investments, the new regime could be considered.

In either case, regularly reviewing your financial situation and tax strategy will help ensure you’re making the most of your income while planning for a secure future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Asked by Anonymous - Apr 22, 2025Hindi
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Dear Sirs Please review my investment towards 7.5 CR. There are 2 components towards it , 1) Generate monthly income post tax of 4 lakhs, 2) Investment Corpus Towards Capital appreciation Towards option 1 : Investing in the following - a) Tata Motors or Chola Perpetual Bonds 1.4 cr , b) ICICI Balanced Advantage Fund 1cr, c) Kotak Balanced advantage fund 1 cr Towards option 2 ie Capital Appreciation investing in the following - a) HDFC Flexi Cap Equity fund 1.25 cr , b) Parag Parikh Flexi Cap Equity Fund 1.25 cr, c) ICICI Prudential India Opportunities Fund 80 Lakhs, d) ICICI Prudential Multi asset fund 80 lakhs I am looking at a 5 - 7 year investment timeline. Have taken early retirement at 50 years and need the funds to sustain myself. Please also advise if Perpetual bonds is a good option Thanks
Ans: Your investment strategy is thoughtfully constructed. You’ve clearly defined two components:

Monthly income of Rs. 4 lakhs

Capital appreciation with a horizon of 5 to 7 years

Let’s assess each component carefully and suggest improvements.

 

 

Monthly Income Generation Plan – Review and Insights
 

You’ve allocated the following towards income generation:

Perpetual Bonds – Rs. 1.4 crore

Two Balanced Advantage Funds – Rs. 2 crore

 

Let us look at the key strengths and areas to optimise.

 

Perpetual Bonds – Risk and Suitability

These bonds are issued with no maturity date.

Issuers can delay interest payments if they face pressure.

Tata Motors or Chola bonds offer high interest, but risk is also higher.

You need dependable income. Perpetuals may cause delays or cuts.

If rated ‘AA’ or lower, risk becomes even higher.

For safety, consider shifting part to high-rated corporate bonds.

Choose instruments with a defined maturity or high credit rating.

 

 

Balanced Advantage Funds – Regular Payout Source

You have allocated Rs. 2 crore to two funds here.

These are suitable for monthly SWP (Systematic Withdrawal Plan).

They reduce risk by shifting between equity and debt.

This provides smoother return and helps handle market volatility.

Ideal for your need of steady income.

Choose funds with a good track record of 5+ years.

Go for regular plans through a Certified Financial Planner.

They provide guidance and documentation support.

 

 

Key Adjustments to Consider for Income Plan

Don’t depend only on one instrument for income.

Keep part in ultra-short debt funds to manage emergency needs.

You may also allocate a small amount to floating rate funds.

Avoid riskier perpetuals if your lifestyle depends on this cash flow.

 

 

Capital Appreciation Portfolio – Review and Suggestions
 

You have allocated Rs. 4.1 crore across four funds:

Two Flexi Cap Funds – Rs. 2.5 crore

One Thematic Fund (Opportunities) – Rs. 80 lakhs

One Multi Asset Fund – Rs. 80 lakhs

 

This section looks well-structured. Still, here are some observations.

 

Flexi Cap Funds – Long Term Growth Drivers

These offer a mix of large, mid and small cap stocks.

Flexible allocation helps in market ups and downs.

You have spread Rs. 2.5 crore across two flexi caps.

It gives diversified equity exposure.

Good for your 5–7 year horizon.

Continue this investment.

 

 

Thematic Opportunities Fund – Aggressive but Focused

Thematic funds bet on specific trends.

They can perform well in short cycles.

But they are more volatile.

Rs. 80 lakhs is a high amount in one theme.

Reduce this to Rs. 50 lakhs.

Redirect balance to diversified equity or large-cap funds.

 

 

Multi Asset Fund – Helps Manage Volatility

These funds invest across equity, debt, and gold.

They balance returns with risk.

Ideal for medium-term wealth building.

You can continue this allocation.

Add a second multi-asset fund for balance.

 

 

Direct Plan Exposure – Re-evaluate for Personalised Support

Direct plans avoid distribution cost.

But guidance is missing.

Without CFP support, wrong fund choice or exit may happen.

Regular plans through a Certified Financial Planner give tracking.

They help during market swings, taxation and rebalancing.

This becomes very important in large-value portfolios.

 

 

Asset Allocation Review – What’s Working and What Needs Tune-Up
 

Your allocation is roughly:

45% towards income (Rs. 3.4 crore)

55% towards growth (Rs. 4.1 crore)

This mix looks aligned to your goal of current income and future corpus.

Still, consider the following:

 

Review this mix yearly with your Certified Financial Planner

If market rallies too much, shift some growth to income

If interest rates rise, reduce equity withdrawal and increase debt

Keep Rs. 25–30 lakhs in liquid fund for any large emergency

 

 

Taxation on Mutual Funds – Stay Aware of Recent Rules
 

Equity mutual funds:

LTCG above Rs. 1.25 lakh is taxed at 12.5%

STCG is taxed at 20%

 

Debt mutual funds:

Both LTCG and STCG taxed as per your tax slab

Most retirees fall in lower slab but tax planning still needed

Prefer SWP for income, not dividend option

Keep P&L statement ready for advance tax filing

 

 

Tax-Free Cash Flow – Can You Improve It?
 

You can also look at these steps:

Use HUF or family member’s name for part investment

Income from their investment gets taxed in their slab

Helps reduce your tax burden

Invest Rs. 1.5 lakh yearly in PPF for guaranteed, tax-free return

Can also explore Senior Citizen Savings Scheme (SCSS) if eligible

 

 

Avoid Index Funds – Not Suitable for Your Stage
 

Index funds copy the stock market

They don’t adjust based on conditions

There’s no downside protection in falling markets

Actively managed funds give more opportunity to earn and protect

Your current selection rightly avoids index funds

 

 

Avoid Direct Plans Without Support
 

Direct plans don’t include expert guidance

No one checks asset allocation or strategy alignment

You’re investing a large corpus. Mistakes cost more here

Use regular plans via an experienced Certified Financial Planner

They help in paperwork, KYC, taxation, SWP planning, rebalancing

Their personalised help adds more value than small cost savings

 

 

Perpetual Bonds – Should You Continue or Exit?
 

Not the best for regular income seekers

Issuer can skip interest if company faces pressure

Price of these bonds also swings with interest rates

You can’t rely fully on them for Rs. 4 lakh per month

Exit partly and shift to short-duration or banking PSU debt funds

These are better for predictable income with lower risk

 

 

Review of Liquidity and Emergency Planning
 

At least Rs. 30–35 lakhs should be in liquid or overnight funds

This money is for health, family needs or urgent situations

Don’t touch your income or capital funds for this purpose

This buffer will give you confidence and reduce portfolio risk

 

 

Risk Management – How to Prepare for Unseen Events
 

Review health insurance for self and spouse

If you’ve not already done it, get Rs. 25 lakh cover each

Consider critical illness policy to protect against long illness

Update nominations in all funds and accounts

Keep estate plan or Will ready. Talk to your planner on this

 

 

Rebalancing Strategy – Keep it Dynamic
 

Review portfolio every 6 months

Don’t chase top-performing funds blindly

Instead, rebalance as per your income need and age

Reduce equity by 5% every 2 years as you age

This protects corpus and supports steady cash flow

 

 

Finally
 

You’ve structured your Rs. 7.5 crore goal very thoughtfully

You are clear about income and long-term appreciation

Your fund choice is broadly good, with only minor changes needed

Avoid risky bonds like perpetuals as your lifestyle depends on monthly cash flow

Go for actively managed regular funds via Certified Financial Planner support

Keep tax, liquidity, insurance and emergency planning all in place

This will help you enjoy your retirement peacefully and confidently

 

 

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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