Here’s the tax you pay on investments
MUMBAI: Where do you invest your money— fixed deposit, mutual funds, gold, real estate, or other instruments? Depending on the investment vehicle, you will be taxed. To understand how much tax you pay, let’s look at some of the investment products:
FIXED DEPOSITS
In the past couple of months, banks have revised interest rate on fixed deposits. For instance, State Bank of India increased deposit rates of the 3-10 year basket by 5-10 basis points (bps). For individuals up to the age of 60, the interest from bank fixed deposit will be taxed at slab rate. In case of senior citizens—over the age of 60 years—up to ₹50,000 interest will be exempt per financial year. Above that, senior citizens will have to pay tax on slab rate. “Up to ₹10,000 from bank interest is not taxed for those below the age of 60 years,” said Suresh Sadagopan, a Mumbai-based financial planner. Also, if you invest in tax saving five-year FDS, you can claim tax deduction under section 80C of the I-T Act for up to ₹1.5 lakh.
MUTUAL FUNDS
For tax purposes, mutual funds can be divided into domestic equity-oriented mutual fund and other funds (including all debt funds). “In both cases, you have to pay capital gains tax upon redemption. For domestic equity-oriented mutual fund, if you hold the investment for up to one year, you will have to pay short-term capital gains tax at 15.6%. In case you remain invested for more than a year, you have to pay long-term capital gains tax at 10.4% for any gain that exceeds ₹1 lakh (the first ₹1 lakh is tax-exempt),” said Srikanth Meenakshi, co-founder, Fundsindia.com. If your fund is a dividend distributing fund, for any such distribution, you also have to pay a dividend distribution tax of 12.94%. Apart from these, there is a small securities transaction tax of 0.001%. “In case of other funds, including debt mutual funds, if you hold investments for less than three years, you will have to pay short-term capital gains tax which will be taxed at slab rate. In case you hold the debt fund for more than three years, you will have to pay long-term capital gains tax at 20.8%. For dividends, you also have to pay a dividend distribution tax of 38.83%.”
GOLD
In case you invest in gold for up to three years, you have to pay shortterm capital gains tax at slab rate. If your holding is for more than three years, you will have to pay long-term capital gains tax which will be 20.8% with indexation. If you have invested in sovereign gold bond, the capital gains tax arising on redemption to an individual has been exempted. The indexation benefits will be provided to long-term capital gains arising to any person on transfer of bond.
REAL ESTATE
While selling a property you own, you will have to pay tax in case of capital gains. In case you hold the property for up to two years, you will have to pay short-term capital gains tax at slab rate. “For holding a property for above two years, you will be paying long-term capital gains tax at 20% with indexation, plus 4% cess and surcharge. The total amounts to 20.8%,” said Anuj Puri, chairman, Anarock Property Consultants Pvt. Ltd.
YOU MUST CONSIDER TAX
It is important to look at post-tax returns while considering an investment instrument as tax eats into your overall returns. Hence, you must factor in tax.