21 Popular Investments And Their Tax Assessment (As Per Budget 2019)

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21 Popular Investments And Their Tax Assessment (As Per Budget 2019)

A few years back, a friend of mine bought a Life Insurance Policy because he believed he could save more tax. But now, unfortunately, he finds paying a premium of 1 lakh stressful as he also has to pay a fat EMI for his home loan.  You must be wondering why I am telling you this.

With the release of the Budget every year, we need to reshuffle our investment plans; otherwise, you might be in a situation like him. His predicament is a really strong example to prove that traditional insurance policies hold no importance as a tax saving instrument.

Similarly, there are 20 other popular investment tools at present whose tax assessment is absolutely necessary in order to take the right decision. This post will serve as a piece of investment advice to those seeking appropriate options to cut down taxes. Here I am listing down the 21 most popular investment instruments and their tax assessment for the FY 2019-20, which will help you preeminently to pick the best investment plan.

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1. Bank Savings Account

  • Under section 80TTA, interest in your savings account up to Rs. 10,000 is tax-free. Any interest income more than that is liable for tax as per the ongoing Income Tax (IT) slab rates.
  • For senior citizens, interest up to Rs.50, 000 is exempted from tax.
  • No TDS on the interest income earned on a savings account – both bank and post office.

2. Bank Fixed Deposits

  • For fixed deposits, your entire interest income will be considered as part of your total income and will be taxed as per the IT slab rates.
  • 10% TDS will be deducted if your interest per annum is above Rs.40000. (Announced in the budget 2019).
  • For senior citizens and pension earners, this threshold is raised further by Rs.10000 i.e Rs.50000.
  • FD account not linked to PAN is liable for TDS of 20%.

3. Bank Recurring Deposits

The TDS and Tax assessment formula for Recurring accounts in the bank is same as that of Fixed Deposit. (Earlier there was no deduction as TDS for RD).

4. Company Fixed Or Recurring Deposits

  • The company’s total income including the whole interest amount is taxed as per the ongoing tax slab rate.
  • Companies with annual interest income exceeding Rs.5000 is liable for 10% TDS.

5. Bonds

  • The amount of interest you earn on NCDs or Bonds is tax payable as per current tax slab.
  • 10% TDS for interest more than Rs.5000. Bond or NCD hold in the Demat form is free from TDS.
  • Tax on Capital Gains – Capital gain is entailed when the bond is sold before maturity through exchange. There are two types of Capital Gains – Short Term Gains (for holding less than a year) and Long Term Gains (for holding more than a year). The former is taxed as per tax slab rate and the latter is taxed at a flat 10% rate. No benefit for indexation is available.

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6. Tax-Free Bonds

As the name says, no tax is charged on Tax-free bonds. But like the previous case, capital gain is involved when the bond is sold before maturity. The Tax formulation for short and long term capital gain is the same as that of NCDs/bonds.

7. Savings Deposit in Post Office

  • Under section 10 (15) (i), interest income less than or equal to Rs.3500 are exempted from tax for the account of single holders. Similarly, Joint holders get a tax exemption on interest income up to Rs.7000. The interest amount that remains is liable for tax payment as per applicable income-tax slot.
  • The good news is No TDS is applicable on savings accounts in Post Office.

8. Public Provident Fund

Interest received on any PPF account is not tax chargeable.

9. Senior Citizen Saving Scheme (SCSS)

For senior citizens, the interest earned on SCSS is added to the total income and taxed at marginal tax rates.

Click here to know how it beats Bank FDs by saving more tax.

10. National Savings Certificate and Kisan Vikas Patra

TDS is zero and a minimal rate of tax is imposed on the interest income after adding it to the total income.

11. National Pension Scheme

  • The new government budget, that came into effect on April 1, 2019, has made the NPS tax-friendly by cutting down taxes of 60% of the corpus that is subjected to withdrawal by the investor on maturity.
  • The remaining 40% of corpus should be kept aside for buying an annuity. The monthly payout received is fully taxable.

12. Pension Plans

  • Pensioners are benefitted to a greater extent with the new budget structure as one-third of the maturity amount of Pension plan is made tax free and eligible for lumpsum withdrawn.
  • The remaining 2/3rd of the income should be kept for annuity where monthly amount received from the annuity is tax-liable.

13. Employee Provident Fund

  • Employees, holding continuous services for 5 years or more, will enjoy zero per cent tax on the maturity amount procured from the EPF.
  • People, with a service period, less than 5 years, shall pay tax charged on their maturity amount as per the ongoing IT rate.
  • 10% TDS will be imposed for premature withdrawal from the fund account, when the payout is more than Rs.50, 000.
  • If PAN information of the employee is not well-found, TDS will rise from 10% to 20%.

14. Equity Mutual Fund

  • Gains from investment hold more than a year is termed as Long Term Capital Gains and are taxed at the rate of 10.4%.
  • For Short Term Capital Gains i.e. investment with a duration of less than 1 year, the tax rate is 15.6 %.
  • The dividends earned from the investment are exempted from tax, but the Dividend Distribution Tax (DDT) at a rate of 11.648 % is deducted from the funds before payment.

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15. Debt Mutual Fund

  • 20% tax rate is charged on the Long Term Capital Gains after indexation, where the period of holding an investment is 3 years or more.
  • Short Term Capital Gains are taxed at nominal tax rates after adding it to the income.
  • The dividends earned from the investment are exempted from tax, but the Dividend Distribution Tax (DDT) at a rate of 29.12 % is deducted from the funds before payment.

16. Equity

  • Tax charged on LTCG and STCG is same as that of Equity Mutual Fund. (point no.14).
  • Income from dividends is free from tax up to the amount Rs.10 lakhs. Above that, it will be taxed at a flat rate of 10%.

17. Gold – Jewellery or Bullion

  • 20% tax rate is charged on the Long Term Capital Gains after indexation, where the period of holding an investment is 3 years or more.
  • Short Term Capital Gains are taxed at nominal tax rates after adding it to the income.

18. Gold Monetization Scheme

  • Interest is totally freed from taxation.
  • No tax on capital gains when the value of gold appreciates.

19. ULIPs

  • When the premium amount < 10% of the maturity amount for the entire time period, no tax is charged.
  • Partly withdrawals of the maturity amount, before the policy expiry, are free from tax after 5 years.
  • When the total receipt is more than 1 Lakh, TDS is deducted at 2%.

20. Rental Income

  • 30% standard deduction is applicable to rental income. Afterwards, the rent will be taxed as per the tax slab.
  • For home loans, one can claim a tax deduction on the interest paid. Further, home repairs, property tax, home insurance, are eligible for deduction.

21. Property Purchase or Sell

  • 20% tax rate is charged on the Long Term Capital Gains after indexation, where the period of holding a property is 3 years or more.
  • By selling 1 house, a taxpayer can purchase 2 houses, if capital gain < Rs.2 crore. But as per Budget 2019 proposal, you can avail this benefit only once in your lifetime.
  • Short Term Capital Gains are taxed at nominal tax rates after whichever is applicable in your case.

Bottom Line

There have been no major shifts in the ranking of the effective tax-saving investment instruments, except for some tweaks here and there. ELSS undoubtedly tops the list to date, despite the tax introduction on Long Term Capital Gains from equity funds and stocks. Also, there has been an upward shift of NPS due to the revisions in tax rules and investment limits in pension schemes. Similarly, ULIPs have become an attractive insurance policy when insurers came with some online plans with Return of Mortality Charge (ROMC) benefit.

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The expertise of a professional financial planner is necessary to execute a balanced wealth planning to make your future secure. No matter how much knowledgeable you are, you always need an expert guide by your side to chalk out a sound and effective personal financial planning. He is the one to point out the pros and cons of each investment choice to help you decide. So, without taking any risk, hire a financial planner straight away if you don’t want to allocate your money in the wrong assets.

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