How taxes are applicable on financial instruments?

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.

Jan 14, 2016 09:01 IST India Infoline News Service

Tax
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. 

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