With a little over a month left to file your income tax returns (ITR) for the financial year 2018-19, it is wise to ascertain the income you made from your investments during the year and your tax liability towards it.
Tax applicability towards these investments will vary according to the type of financial vehicle and the tax savings possibilities will also be different.
Here is an explanation on how you will be taxed on investments in shares, mutual funds, fixed deposits, gold and real estate.
Capital gains/ loss
In tax terminology, profits or losses made from selling a "capital asset" is called a "capital gain or loss." These assets include real-estate, vehicle, patent, trademarks, machinery, jewellery (gold), investments in shares or other securities, etc.
Further, these are again catergorised as "long-term" or "short-term" assets based on the duration of the ownership and the type of asset to ascertain their income tax treatment.
In your ITR form, you will see a separate head on "income from capital gains", wherein you enter the information on income made from these investments during a certain financial year.
If you made a loss, say from the sale of company shares, you can write it off against the income in the same head and lower you tax liability under the head "income from capital gains."
Shares held for less than a year will be short term capital assets and beyond a year, they become long term capital assets. Profits made from selling these will become short term capital gain (LTCG) or long term capital gain (STCG), accordingly.
LTCG on shares are exempt from income tax up to the extent of Rs 1 lakh for the FY 2018-19. Profits beyond Rs 1 lakh are taxed at 10 percent. STCG are taxed at 15 percent.
If you have earned dividend on shares, these are tax-free up to Rs 10 lakh in a year.
For tax purposes, mutual funds will be divided into two categories: equity-linked mutual funds and debt mutual funds, that is, based on their investments made by the fund.
The first category is taxed just like direct share investments, explained above.
Whereas, gains from debt mutual funds are considered as STCG when held for less than 3 years and LTCG when held for 3 years or more.
Here LTCG are taxed at 20 percent with indexation benefit (it means the tax is based on adjusted purchase price considering inflation effect).
STCG on debt mutual funds are taxed as per the income tax slab rate applicable on investor.
In an SIP (Systematic Investment Plan), each installment paid is considered as a new investment and taxed separately.
ELSS (equity-linked savings scheme) investments are those that come with a lock-in period of 3 years and special tax deduction are allowed on these under section 80C.
If you had sold a house, building or land you owned during the financial year 2018-19, profits made are considered as capital gains.
For immovable property sold within 2 years of possession, the profits will regarded as STCG. These are taxed based on the individual's applicable tax slab.
Gains made from the sale of immovable property owned for 2 or more years are LTCG and taxed at 20 percent.
Inherited property is not taxed as it is not a sale but rather a transfer of ownership.
LTCG and STCG from investment in gold is treated the same as debt mutual funds.
If you have invested in Sovereign Gold Bonds (SGB) and redeemed them only on maturity, the capital gain is exempt from tax. Interest earned on these are, however, taxed based on the tax slab applicable on them.
Interest earned on fixed deposits are fully taxable at the rate of 10 percent if the interest income for the year exceeds Rs 10,000. This tax is deducted at source, which means that the bank will deduct the tax on our behalf before paying the maturity amount to you.
If you have invested in 5-year FD schemes offered at banks and post offices, you can claim deduction under section 80C.
The tax exemption limit on interest income on FD for senior citizens is Rs 50,000 for the FY 2018-19.