Stocks, Mutual Funds, Fixed Deposits, Bonds, Real estate, Gold etc., are various Asset Classes that are popular among the investor community. It’s very important for investors to have a proper asset allocation to achieve financial goals.
Different asset classes have different tax implications. The returns (or) gains generated by these various asset classes are taxed differently.
For example- the interest income from Bank Fixed deposits is a taxable income, the long-term capital gains of upto Rs 1 lakh from Equity Funds is tax-free, and the capital gains from sale of your property can be a taxable income and so on..
As an investor you should be aware of these tax implications so that you can create a tax-efficient investment portfolio. (However, your investment decisions should not be based on tax-saving criteria alone.)
In this post, let us understand the tax implications on various asset classes, how are the returns / gains from various asset classes like Stocks, Mutual Funds, Real Estate, Bonds, Gold etc., taxed in FY 2023-24?
Asset Classes & Financial Instruments – Tax Implications FY 2023-24 / AY 2024-25
Below are the details of tax implications on investments in various Asset Classes;
How are investments in Stocks Taxed for FY 2023-24?
- If you hold your stock investments for less than 12 months, the gains are treated as Short Term Capital Gains and are taxed at flat 15%. (Applicable for Shares which are listed on stock exchanges and are sold on stock exchanges)
- STT (Securities Transaction Tax) at the rate of 0.1% is charged on sale of Shares.
- If the aggregate amount of dividend distributed or paid during the financial year to a shareholder exceeds Rs. 5,000 then an Indian company shall deduct tax at the rate of 10%. Dividend income is taxable in the hands of taxpayers irrespective of the amount received at applicable income tax slab rates.
- If you hold your stock investments for more than 12 months, the gains are treated as Long Term Capital Gains and are taxed at a 10% rate (plus surcharge and cess), if they reach Rs. 1 lakh in a fiscal year
Mutual Fund Taxation Rules AY 2024-25
With effective from FY 2023-24, no indexation benefit is available while calculating long-term capital gains on Specified Mutual Fund (i.e a mutual fund which invests less than 35% of its proceeds in the equity shares of domestic companies). We can consider these specified funds as pure Debt oriented funds and any gains (STCG or LTCG) on these are now taxed as per income tax slab rate. This new rule is applicable for investments made on or after April 1, 2023 only.
With this new amendment, we now have three broad type of funds – Equity, Non-Equity & Specified Funds.
|Percentage of Equity Exposure||0% to 35%||36% to 64%||65% & more|
|Type of Fund||Specified Fund||Non-Equity oriented Fund||Equity Mutual Fund|
Equity Mutual Funds (Regular Equity funds, ELSS, Equity oriented Balanced Funds etc.)
- If you make a gain / profit on your investment in a Equity Mutual Fund scheme that you have held for over 1 year, it will be classified as Long Term Capital Gain.
- If your holding in an Equity mutual fund scheme is less than 1 year i.e. if you withdraw your mutual fund units before 1 year, after making a profit, then the profit will be considered as Short Term Capital Gain.
- The STCG (Short Term Capital Gains) tax rate on equity funds is 15%.
- The LTCG (Long Term Capital Gains) tax rate on equity funds is 10%.
Non-Equity Funds (Hybrid Funds)
- If you make a gain / profit on your investment in a Non-Equity Mutual Fund scheme that you have held for over 3 years, it will be classified as Long Term Capital Gain.
- If you make a gain / profit on your Debt fund (or other than equity oriented schemes) that you have held for less than 36 months (3 years), it will be treated as Short Term Capital Gain.
- The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate.
- The LTCG tax rate on non-equity funds is 20% (with Indexation benefit).
- With effective from 1st April 2020, the dividend income received by investors from mutual funds(Equity or Debt funds) will be subject to TDS @ 10%. This TDS is applicable if such income is in excess of Rs 5,000 u/s 194K. Also, such dividend income is a taxable income in the hands of investor as per his/her income tax slab rate.
How are Gold Investments Taxed in FY 2023-24?
- Gold ETFs or Gold Funds are treated as Non-Equity funds only .
- The tax implications on gains of selling Physical Gold are same as in the case of Non-Equity mutual funds. (Indexation benefit is available for Long Term capital Gains)
- TDS rate is not applicable on selling of Gold. However, buying jewellery over Rs 2 lakh in cash will attract 1% TDS.
- Sovereign Gold Bonds
- The interest payments on Gold Bonds shall be taxable as per your income tax slab rates.
- Gold bonds are exempted from capital gains (LTCG) tax at the time of maturity.
- However, kindly note that Long term capital gains arising to any person on transfer of SGB will continue to be taxable at 20% and eligible for indexation benefits.
- TDS is not applicable on the bonds. However, it is the responsibility of the bond holder to comply with the tax laws.
Tax Implications on investments in Real Estate Properties
- Real Estate
- If Land or house property is held for 24 months or less then that, such Asset is treated as Short Term Capital Asset. Short Term Capital Gains are included in your taxable income and taxed at applicable income tax slab rates.
- If Land or house property is held for more than 24 months then that Asset is treated as Long Term Capital Asset. Long Term Capital Gains on sale of property are taxed at 20% (with indexation).
- If you receive any rental income from the property then it has to be included in your income and taxed at income tax slab rate.
- If you are claiming HRA (House Rent Allowance) of more than Rs 50,000 per month (or) paying rent which is more than Rs 50,000 then the tenant has to deduct TDS @ 5%. The TDS could be deducted at the time of credit of rent for the last month of the tax year or last month of tenancy, as applicable.
- The buyer of the property needs to pay TDS @ 1%, on sale of property which is valued at Rs 50 Lakh or more.
- Effective 1 September 2019, the limit of Rs 50 lakhs would be towards consideration of the immovable property including all other charges incidental to the purchase of immovable property such as parking fee, society fee, club membership fee paid by the buyer.
- The Registrar of properties reports purchase & sale of all immovable properties exceeding Rs 30 Lakh to the Income Tax authorities.
- The monetary limit for quoting PAN for sale or purchase of immovable property has been raised to Rs.10 lakh from Rs.5 lakh. Properties valued by Stamp Valuation authority at amount exceeding Rs.10 lakh also need PAN.
- The Long Term capital Gains on sale of property can be saved by investing in specified investment avenues.
- REITs (Real Estate Investment Trusts)
- If units of REIT are held for 36 months or less than that, such Asset is treated as Short Term Capital Asset. Short Term Capital Gains are taxable at 15% without indexation benefit.
- If units of REIT are held for more than 36 months, such Asset is treated as Long Term Capital Asset. Long Term Capital Gains of more than Rs 1 lakh are taxable at 10%.
- The Interest and rental income from REIT units are taxed at the resident’s applicable tax slab rate.
How are investments in Bonds, NCDs, Fixed Deposits taxed in India?
- Fixed Income & Bonds
- Tax Free Bonds
- Interest received on TFBs is tax-free. TDS is not applicable.
- Short-term capital gains from sale of tax-free bonds on exchanges are taxed at your income tax slab rate.
- Long-term capital gains are taxed at 10% without indexation. The indexation benefit is not available for Bonds.
- For STCG holding period is less than 12 months. For LTCG holding period should be more than 12 months.
- Non-Convertible Debentures
- Effective from 01st April 2023, 10% TDS will be deducted on interest income of above Rs 5000, on listed NCD as well.
- Interest earned on NCD bonds is taxable as per the tax slab of the investor.
- If you sell NCDs on stock exchange before one year from the date of purchase, Short Term Capital Gains Tax is applicable. Tax rates depend on the tax slab you fall into.
- If you sell NCDs on stock exchange before maturity but after one year, Long Term Capital Gains Tax (if any) at 10% without indexation is applicable.
- Company Fixed Deposits
- TDS is not applicable on interest earned upto Rs 5,000 pa.
- You have to club the interest earned on these deposits as ‘income from other sources’ and file your annual Income Tax Returns.
- Fixed Deposits / Recurring Deposits
- The interest income earned on Fixed deposits/RDs is taxable.
- For Senior Citizens, the Interest income earned on Fixed Deposits & Recurring Deposits (Banks / Post office schemes) of upto Rs 50,000 is tax exempted. This deduction can be claimed under new Section 80TTB. However, no deductions under existing 80TTA can be claimed if 80TTB tax benefit is claimed.
- Section 80TTA of Income Tax Act offers deductions on interest income earned from savings bank deposit of up to Rs 10,000. From FY 2018-19, this benefit will not be available for late Income Tax filers.
- No TDS of up to Rs 40,000 on interest income from Bank / Post office deposits (the FY 2018-19 TDS threshold limit u/s 194A is Rs 10,000). Kindly note that no TDS does not mean no tax liability. Interest income on Deposits (FDs/RDs) is still a taxable income.
- Tax Free Bonds
If you are aware of the tax implications at various investment stages, you can pick tax-efficient investment options. Tax efficiency is a measure of how much an investment’s return is left over after taxes are paid. Tax efficiency is essential in order to maximize net returns on our investments.
Asset Allocation is a very important investment strategy. You should invest in suitable financial products or Asset Classes based on your financial goals. If an investment option meets your requirements and is also a tax efficient one then it is well and good. Your investment strategy is to max out your after-tax returns.
- Income Tax Deductions List FY 2023-24 | Under Old & New Tax Regimes
- Latest TDS Rates AY 2024-25 | TDS Rate Table for FY 2023-24
(Post first published on : 07-October-2016) (Post last updated on 15-Aug-2023)