As everyone must have already started with their tax-planning, it’s time to revisit the ways in which various financial instruments are taxed.
Equity Stocks or Equity and Arbitrage Funds -
Such instruments when held for a year or long are exempted from long-term capital gains while short-term capital gains are applicable at the rate of 15%. Dividends are not taxable in the hands of investors.
Savings, fixed or recurring deposits -
Interest up to Rs 10,000 on a savings account is tax-free while any amount of interest is taxed as per applicable income slab for fixed and recurring deposits. TDS of 10% will be deducted from fixed deposits if the interest exceeds Rs 10,000 in a year.
Tax-free bonds -
Any amount of interest earned under tax-free bonds are tax-free. Long-term capital gains of 10% are applicable on listed bonds if the holding period exceeds one year but no indexation benefit is available. The short-term capital gain is charged at nominal rates.
Bonds and debentures -
Interest over and above Rs 5,000 earned under bonds and debentures are subject to 10% TDS. Long-term capital gains tax at the rate of 10% is charged when instruments are held for more than one year while short-term capital gains are charged at nominal rates.
Debt and Gold funds -
Long-term capital gains tax at the rate of 20% (after indexation) is applicable for a holding period of more than three years. Dividends for debt funds are tax-free in the hands of investors for debt schemes. Short-term capital gains are charged at nominal rates for both gold and debt funds.
Real Estate Investment Trust (REIT) - REITs held over and above one year are exempted from long-term capital gain. Short-term capital gains are taxed at the rate of 15%. Rents and interest received and distributed by REIT will be taxed in the hands of investors. However, dividends distributed by REIT are tax-free for investors.