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| Income from Capital Gains and Income Tax Posted: 16 Jan 2014 04:35 AM PST We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
Any profit or gain arising from transfer of capital asset held as investments are chargeable to tax under the head capital gains
Any profit or gain arising from transfer of capital asset held as investments are chargeable to tax under the head capital gains. The gain can be on account or short- and long-term gains. A capital gain arises only when a capital asset is transferred. Which means if the asset transferred is not a capital asset; it will not be covered under the head capital gains. Profits or gains arising in the previous year in which the transfer took place shall be considered as income of the previous year and chargeable to income tax under the head Capital Gains and the concept of indexation shall apply, if applicable.
Capital Asset: It is any property held by the income tax assessee excluding
Capital assets are of two types: Short and long term capital asset
Long term capital asset: This is an asset that is held for more than 36 months or 12 months as the case may be. Transfer is defined as the sale of the asset, giving up of rights on the asset, forceful takeover by law or maturity of the asset. Many transactions are not considered as transfer, for example, transfer of a capital asset under a will. Stocks and units of equity diversified mutual funds qualify for long term capital gains if held for more than a year. Similarly, if real estate is held for 3 years, it qualifies for long term capital gains. If sold before 3 years, it qualifies for short term capital gains.
Capital Gains: Any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains. Examples of assets are a flat or apartments, land, shares, mutual funds, gold among many others.
There are two types of capital gains:
Short term capital gain: capital gain arising on transfer of short term capital asset.
Long term capital gain: capital gain arising on transfer of long term capital asset.
Capital gains can be taxed subject to the following conditions:
Computing capital gains
Concept of Indexation
Cost Inflation Index (CII)
The CII is then multiplied with the purchase price to arrive at the indexed cost of acquisition which is the actual or true cost at the time of tax computation or calculation. The indexed cost of acquisition = Rs 20,00,000 x 1.67 = Rs 33,40,000 Hence, long term capital gain = full value of sale - indexed cost of acquisition = Rs 35,00,000 - Rs 33,40,000 = Rs 1,60,000
Tax liability on capital gain with indexation and without indexation
In the example above, using indexation, the tax liability comes to (20/100) x 1,60,000 = Rs 32,000 If you were to not use indexation: Capital gains = Sale price of asset - Cost of acquisition = 35,00,000 - 20,00,000 = Rs 15,00,000. Capital gains tax on this at 10 per cent = (10/100) x 15,00,000 = Rs 1,50,000. This is the advantage of using indexation as you benefit in saving taxes
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| Posted: 16 Jan 2014 03:35 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300
Best tax Saver Option Getting your first job, the credit of your first salary – all are occasions worth remembrance. Do you realize, this also marks your entry into a world, which is driven by money? Suddenly you find yourself receiving all sorts of offers ranging from pizza to credit cards at a click of a button. And then BANG!! Government too, wants its share in the form of taxes!! Well, you didn't expect that! Did you! However, that's a bitter truth; your entry into workforce also marks your entry into taxpayers' list.
In this first article of the series, let's consider a recent graduate who has just entered the corporate world and earns an annual salary of Rs. 4 lakhs.
The Income Tax rates applicable for the FY ending March 31, 2014 are:
Considering the Income tax slab for FY 13-14, here is how, his tax would be calculated:
Section 80C offers various investments and expenditure ranging from equity saving schemes to deposits, which can be availed for tax exemption, the maximum limit being Rs. 1 lakh.
ELSS or NPS? Suggested Allocation 80-100% Equity investments, if chosen judiciously, can make your wealth grow faster by beating inflation than most of the investments and lower your tax burden. ELSS (Equity Linked Savings Scheme) & NPS (National Pension Scheme) are such two schemes.
ELSS invests primarily in equity shares of companies. It is an equity diversified fund which provides the benefits of capital appreciation, as well as tax benefits. It has a lock in period of 3 years with tax free dividends and capital gains. The main risk with ELSS is that it has a considerable equity exposure (usually 80% of the total amount is invested in the equity with remaining 20% invested in bonds, debentures, Government securities etc.) and the returns are linked to market returns. NPS is a pension scheme, which not only provides good cost adjusted returns and tax saving but also plans for your retirement. The investor has the flexibility to decide the percentage of the corpus which should be allocated for equity, corporate bonds and government securities, with the only limitation being the 50% cap on exposure to equity. One of the most outstanding features of NPS is the 'lifecycle fund', under which the equity exposure is decided by investor's age. 50% allocation to equity is reduced every year by 2% after the investor turns 35, till it comes down to 10%. This is in line with the strategy to opt for a 'higher-risk higher-return' portfolio mix early in life, when there is ample time to make up for any possible black swan event. The differences amongst the two are mentioned here:
Equity Investment Schemes EET tax system implies that while contributions and returns to the scheme are exempt up to a limit, withdrawals would be taxed as normal income. Thus, on comparing ELSS & NPS, NPS turns out to be a far economical tax saving instrument. It also allows equity investments, which enhances the chance of getting higher returns. It further offers an additional tax-saving method as employer's contribution to the extent of 10% of basic plus DA. This is in addition to the Rs. 1 lakh permissible in Sec 80C.
For a young individual, whose risk tolerance is relatively high, a higher equity allocation to the entire asset base makes sense. Thus, 80-100% allocation i.e. entire Rs. 20,600 can be allocated to the NPS.
Fixed deposit (FD) or Public Provident Fund (PPF) Suggested Allocation (0-20%) FD & PPF, both are regular income earning investments, where, the investor receives a pre-determined assured return. However, there are some differences amongst the two, which has been listed below:
Regular income earning investments As it is evident, the main difference between PPF & FD is the maturity and the tax on the interest earned, which is payable in FD and exempted in PPF.
Ideal tax saving instrument in this scenario is NPS, although it has a long lock in period till the age of 60 years. If you plan to buy a new car in let's say next 5 years then a small proportional allocation to FD can be considered. Similarly, if you plan to buy a house let's say after 15 years, small contribution to PPF would be an option. Identification of financial goals, both long term as well as short term will be instrumental in deciding the tax saving instrument.
Insurance policiesLet's start with life insurance policy. If you have dependents, then life insurance policy should be considered. You can give it a miss, if that's not the case. However, one should be careful as not all insurance policies are eligible for tax exemption. So, what to look for before you buy? The cover should be at least 10 times the annual premium of the policy. The sum assured should only be the basic cover and should not include bonuses and other payments.
Health insurance: Sec 80DPremium paid for insuring the health of self is eligible for up to Rs 15,000 in a financial year. Paying for parents' cover gives an additional deduction of up to Rs. 15,000. If one of the parents is insured, is above 60 yrs (a senior citizen for tax provisions), the deduction limit increases to Rs. 20,000.
Education loan: Sec 80EIt's a common notion that in current inflationary scenario, students have to resort to education loan to fund your college fees. Do you know that education loan is your pal in reducing your taxes? How? As per Sec 80E, any amount of interest paid towards the education loan, can be claimed as a deduction. However, this applies only on interest and not on the principal.
By all means, this is not an exhaustive list of tax deductions, but just a few pointers which may apply to a young individual starting a career. If you would like to know more about other tax saving instruments, please go through the list of plans covered in tax deduction section 80C, 80D & 80E etc. For a young individual, starting early with adequate time and effort spent towards tax planning will not only help him in minimising taxes but also lead to steady cash flow generation from the amount saved in the years to come.
We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
2. Franklin India Smaller Companies E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF |
| Posted: 16 Jan 2014 02:03 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300 Find out what qualifies you as a resident Indian when filing your tax returns
For further information on the topic you can CONTACT Prajna Capital on 94 8300 8300 by leaving a missed call.
We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
2. Franklin India Smaller Companies E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
H. International funds Invest Online 1. Birla Sun Life International Equity Plan A 2. DSP BlackRock US Flexible Equity 3. FT India Feeder Franklin US Opportunities 4. ICICI Prudential US Bluechip Equity 5. Motilal Oswal MOSt Shares NASDAQ-100 ETF |
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