J K Varghese & Co

DEBT FIXED INCOME INSTRUMENTS:

Savings a/c:

1. Interest up to Rs 10,000 is tax free, taxed at slab rate after that.
2. TDS generally not deducted on savings interest.

Fixed deposits:

1. Full interest taxed at slab rate.
2. TDS of 10% if interest in any financial year crosses Rs 10,000

Recurring deposits :

1. Full interest taxed at slab rate.
2. TDS generally not deducted on RD interest

Tax-free bonds:

1. Full interest is tax free.
2. The long-term capital gain (after holding for 1 year) taxed at 10%.
3. Being interest bearing instruments, no indexation benefit allowed.
4. Short-term capital gain taxed at marginal rates.

Normal bonds and debentures:

1. Full interest taxed at slab rate TDS of 10% if interest in any financial year crosses the Rs 5,000 mark.
2. The long-term capital gain (after holding for 1 year) taxed at 10%.
3. Being interest bearing instruments, no indexation benefit allowed.
4. Short-term capital gain taxed at marginal rates.

MUTUAL FUNDS:

Equity funds :

1. Long-term capital gain (after holding for 1 year) is tax free.
2. Short-term capital gain is taxed at 15%.
3. Dividends are tax free.

Arbitrage funds: (Provided they maintain equity fund status)

1. Long-term capital gain (after holding for 1 year) is tax free.
2. Short-term capital gain is taxed at 15%.
3. Dividends are tax free.

Equity oriented balanced funds:

1. Long-term capital gain will be tax free.
2. Short-term capital gain taxed at 15%.
3. Dividends are tax free.

Debt funds :

1. Long-term capital gain (after holding for 3 years) is taxed at 20% after indexation.
2. Short-term capital gain taxed at marginal rates.
3. Dividends are tax-free in the hands of the investor, but scheme pays a very high dividend distribution tax of 28.32%

Debt-oriented balanced funds :

1. Long-term capital gains (after holding for 3 years) taxed at 20% after indexation.
2. Short-term capital gain taxed at marginal rates.
3. Dividends are tax-free in the hands of investors, but scheme pays a very high dividend distribution tax of 28.32%

Gold funds:

1. Long-term capital gain (after holding for 3 years) taxed at 20% after indexation.
2. Short-term capital gain taxed at marginal rates.

GOLD :

Gold bullion and ornaments :

1. Long-term capital gain (after holding for 3 years) taxed at 20% after indexation.
2. Short-term capital gain taxed at marginal rates.

Gold bonds :

1. Small interest received in the middle will be taxed at slab rates.
2. Long-term capital gains (after holding for 1 year) taxed at 10%.
3. Being interest bearing instruments, no indexation benefit allowed.
4. Short-term capital gains taxed at marginal rates.

INSURANCE :

Endowment policies

1. Final proceeds tax free if premium in any year did not exceed 10% of the sum assured.
2. TDS of 2% if the total receipt crosses Rs 1 lakh in financial year.
3. Investors should consider service tax paid on premiums also while calculating returns.
4. For endowment plans, it is 3.5% for first year’s premium and 1.75% for the renewal premium.

Ulips :

For ULIPs, service tax is 14% on all charges (like mortality charges, AMC fees, switch fees, etc)

REAL ESTATE :

1. Rent received (or notional rent for the locked up second home) are taxed at slab rate.
2. Deductions available for rent includes property tax, repair costs, home insurance, etc.
3. The long-term capital gain (after holding for 3 years) is taxed at 20% after indexation.
4. Short-term capital gain is taxed at the marginal rates.

REAL ESTATE INVESTMENT TRUST (REIT) :

1. Long-term capital gain (after holding for 1 year) from REIT units listed and traded in stock exchanges will be tax free.
2. Short-term capital gain from REIT units listed and traded in stock exchanges will be taxed at a lower rate of 15%.
3. REIT will be pass through vehicle and is not liable for any income received by it.
4. Rents received by REIT and distributed will be taxed at the hands of investors as rental income.
5. Interest received by REIT and distributed will be taxed at the hands of investors as interest income.
6. Dividends received by REIT and distributed will be tax free in the hands of investors.

Securities Transaction Tax (STT): STT is levied on stocks and equity mutual funds in lieu of tax-free dividends and also lower capital gain taxes. Equity mutual funds are defined as schemes that maintain more than 65% equity exposure and because of that, equity oriented balance funds and arbitrage funds also comes under this category.

Dividend distribution tax (DDT): The mutual fund dividends are tax-free, but there is a dividend distribution tax (DDT) applicable for debt mutual funds. The high DDT (works out to be 28.32% now) has taken the sheen out of the dividend options in debt mutual funds.

Indexation benefit: While computing long-term capital gain (LTCG), indexation benefit is provided as compensation against inflation. For example, if the LTCG is 10% p.a. and the inflation is 7% p.a., you need to pay tax only on 3% additional gains. Indexation benefit is not available for instruments that have interest