Are you paying the right

taxes on your
investments?
Decodifying Investment taxes by
Individual Investors
5 March 2022
Contents
Tax saving investments

Overview of Capital Gain Taxation

Taxation on Dividend and Interest Income

Tax saving investments

► Typically, following investments are eligible for deduction under this head if paid / deposited during the financial year:
80C ► Premium paid for Life Insurance Policy for self, spouse and children
► Contribution to Public Provident Fund
► Employee’s contribution to Recognised Provident Fund
► Employee’s contribution to approved superannuation fund
► Contribution for participation in prescribed ULIP for self, spouse and children
► Contribution to Sukanya Samruddhi Scheme
► Investment in National Saving Certificate
► Investment in Fixed deposits subject to conditions
► Amount of principal repaid towards housing loan
► Equity Linked Saving Scheme (ELSS)

► Deductions of up to INR 1,50,000 for contributions made by an individual towards annuity pension plans offered by
80CCC Life Insurance Corporation of India or any other insurer for receiving pension.

► Taxpayer’s contribution to National Pension System limited to : 10% of employee’s basic salary plus DA (if he/ she is
80CCD(1) an employee) and 20% of gross total income in tax year (if he/ she is an other taxpayer)

Aggregate of above mentioned deductions cannot exceed INR 150,000 per financial year

► Additional deduction available for additional contribution by the taxpayer to National Pension System up to INR 50,000 per
80CCD(1B) financial year. Amount of such deduction is first exhausted against limit of 1.5 lac mentioned above.

Page 3 Decodifying Investment taxes by Individual Investors

Tax saving investments (cont’d.)

► Health Insurance premium paid for self, spouse and children capped to INR 25,000 per financial year
80D ► Health Insurance premium paid for parents will be eligible for additional deduction of INR 25,000 per financial year
► Above limited would be INR 50,000 if anyone is a senior citizen respectively

80TTA/ ► Deduction of INR 10,000 or actual interest earned from savings bank accounts
80TTB ► In case of senior citizen the deduction would be INR 50,000 and it includes interest from all types of deposits
including time deposits

► Deduction on the interest portion on loan availed during the period between 1 April 2016 and 31 March 2017 for
specified residential house property from any financial institution
80EE
► A deduction of up to INR 50,000 is available. This deduction is in addition to deduction for interest on housing loan
up to INR 2 lakh while computing income from house property, subject to other conditions

► Deduction on the interest portion on loan availed during the period between 1 April 2019 and 31 March 2022 for
80EEA specified residential house property from any financial institution
► A deduction of up to INR 1,50,000 is available. This deduction is in addition to deduction for interest on housing loan
up to INR 2 lakh while computing income from house property, subject to other conditions

► Deduction on the interest portion on loan availed for higher education for self or relative, subject to conditions
80E ► Such deduction will be available for a period of 8 years from the year of grant of loan; or until the year of repayment
of loan, whichever is earlier

Page 4 Decodifying Investment taxes by Individual Investors

Overview of Capital Gain Taxation

When is it ► Capital gains is taxable upon transfer* / sale of capital asset subject to certain exceptions
taxed?
► Depending upon the Holding period of capital asset, Capital gain can be classified as either of the following:
► Long Term Capital Gains (LTCG); or
Types of CG ► Short Term Capital Gains (STCG)
► Holding period means the period of time for which asset was held by the owner* (i.e. from purchase to sale/transfer
of a capital asset)

Minimum Holding period for capital

Capital Asset
asset to be considered as LT

Any listed security (e.g., equity shares, debentures) 12 months

Units of Equity Oriented Mutual Fund (listed / unlisted) 12 months

Unlisted Shares (Equity / Preference) 24 months

Land / Building or Both 24 months

Other assets (e.g., gold, unlisted debentures etc) 36 months

*Certain exceptions provided in law

Page 5 Decodifying Investment taxes by Individual Investors

Overview of Capital Gain Taxation (cont’d.)

► Sale Consideration or fair market value in certain cases received or accruing on sale / transfer
How is CG
computed? ► Less: Expenditure incurred wholly and exclusively in connection with such transfer (e.g. brokerage)
► Less: Cost of Acquisition / Indexed Cost of Acquisition (subject to certain prescribed exceptions)
► Less: Cost of Improvement / Indexed Cost of Improvement
► Less: Amount Reinvested eligible for any specified exemptions (subject to satisfaction of certain prescribed
conditions)
► Less: Current Year/ Brought forward CL
Rate of ► Varying rates have been prescribed depending upon LTCG / STCG and type of capital asset and residential status of
Taxation the investor. Below chart capture rates for some typical investments for resident1 individual investors:

Units of Equity Unlisted Shares Bonds and

Listed Equity Land / Building or
Types of Asset Oriented Mutual (Equity / Debentures
Shares Both
Funds Preference) (Unlisted)

STCG 15% 15% Slab Rates2 Slab Rates Slab Rates

Types of
Asset
Non taxable up to INR 1 lac 20% - with 20% - No 20% - with
LTCG3
Above INR 1 lac - 10% without indexation Indexation indexation3 Indexation
1. Tax treatment and rates would differ for Non-Resident Individuals
2. Assumed Securities Transaction Tax is not paid on such transaction
3. In Fiscal Budget 2022, it is proposed that the surcharge on tax on long term capital gains from sale of any capital asset is to be capped at 15%
4. Indexation available for Sov Bond and capital indexed bonds. Overall Treatment may differ for Non Residents
5. A resident individual is entitled to adjust the basic exemption limit of INR 2,50,000 against Long Term and Short Term Capital Gain, after making adjustments of other income, if any.
6. Rebate under Section 88 or Chapter VI A deduction will not be available against STCG / LTCG taxed at concessional rates irrespective of total income level

Page 6 Decodifying Investment taxes by Individual Investors

Taxation on Dividend and Interest Income

What is ► Dividend usually refers to the distribution of profits by a company to its shareholders. Dividends are typically
Dividend received from Indian companies, foreign companies and mutual funds. Dividend reinvested should also be offered to
tax.

Rate of Tax ► Taxable at applicable slab rates.

► Yes, TDS is collected on dividend income. The normal rate of TDS is 10% on dividend income if amount exceeds
TDS?
INR 5,000 per financial year.

What is ► Return generated from interest-yielding accounts is taxable as interest income. Interest income is generated from
Interest savings accounts, Fixed Deposits, Bonds and other investments that pay some form of interest.

Rate of Tax ► Taxable at applicable slab rates.

TDS? ► Yes, TDS is collected on certain types of interest income (e.g., interest on Fixed deposits if amount exceeds INR
10,000 per financial year).

Page 7 Decodifying Investment taxes by Individual Investors

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