tds 2018 - 2019 list of important income tax...

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List of important Income Tax Exemptions

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Income Tax Deductions for FY 2018-19 (AY 2019-20)

List of important Income Tax Exemptions

Tax Deduction limits under few Sections of the Income Tax Act. The important sections and new proposals

with respect to Income Tax Deductions FY 2018-19. This list can help you in planning your taxes.

Budget 2018-19 & the Finance Bill 2018 have been tabled in Parliament. The Income Tax Slab rates have

been kept unchanged by the Finance Minister for the Financial Year 2018-19(Assessment Year 2019-2020).

Tax planning is an important part of a financial plan. Whether you are a salaried individual, a professional

or a businessman, you can save taxes to certain extent through proper tax planning.

The Indian Income Tax act allows for certain Tax Deductions / Tax Exemptions which can be claimed to

save tax. You can subtract tax deductions from your Gross Income and your taxable income gets reduced

to that extent.

In this document, let us go through the Income Tax Deductions List FY 2018-19. I hope you find this list

useful and helps in planning your taxes well in advance.

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Section 80c

The maximum tax exemption limit under Section 80C has been retained as Rs 1.5 Lakh only. The various

investment avenues or expenses that can be claimed as tax deductions under section 80c are as below;

• PPF (Public Provident Fund)

• EPF (Employees’ Provident Fund)

• Five-year Bank or Post office Tax saving Deposits

• NSC (National Savings Certificates)

• ELSS Mutual Funds (Equity Linked Saving Schemes)

• Kid’s Tuition Fees

• SCSS (Post office Senior Citizen Savings Scheme)

• Principal repayment of Home Loan

• NPS (National Pension System)

• Life Insurance Premium (Read : ‘Best Term insurance plans‘)

• Sukanya Samriddhi Account Deposit Scheme

(Read : ‘Tax Saving Investment Options u/s 80c | In whose name can they be Invested?’)

Section 80CCC

Contribution to annuity plan of LIC (Life Insurance Corporation of India) or any other Life Insurance

Company for receiving pension from the fund is considered for tax benefit. The maximum allowable Tax

deduction under this section is Rs 1.5 Lakh.

Section 80CCD

Employee can contribute to Government notified Pension Schemes (like National Pension Scheme – NPS). The

contributions can be upto 10% of the salary (salaried individuals) and Rs 50,000 additional tax benefit u/s

80CCD (1b) was proposed in Budget 2015.

As per the previous Budget 2017-18, the self-employed (individual other than the salaried class) can

contribute up to 20% of their gross income and the same can be deducted from the taxable income under

Section 80CCD (1) of the Income Tax Act, 1961, as against current 10%.

To claim this deduction, the employee has to contribute to Govt recognized Pension schemes like NPS. The

10% of salary limit is applicable for salaried individuals only and Gross income is applicable for non-salaried.

The definition of Salary is only ‘Dearness Allowance.’ If your employer also contributes to Pension Scheme,

the whole contribution amount (10% of salary) can be claimed as tax deduction under Section 80CCD (2).

Kindly note that the Total Deduction under section 80C, 80CCC and 80CCD(1) together cannot exceed Rs

1,50,000 for the financial year 2018-19. The additional tax deduction of Rs 50,000 u/s 80CCD (1b) is over and

above this Rs 1.5 Lakh limit.

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(Read : ‘NPS Scheme – Pros & Cons‘)

Contributions to ‘Atal Pension Yojana‘ are eligible for Tax Deduction under section 80CCD.

Section 80D

In the union budget 2018, the government of India has proposed the below changes with respect to deductions

available on Health Insurance and/or towards Medical treatment;

• Health Insurance & Senior Citizens : In Budget 2018, it has been proposed to raise the maximum tax deduction

limit for senior citizens under Section 80D of the Indian Income Tax Act 1961. The current limit of tax deduction

allowed for FY 2017-18 for senior citizens is Rs. 30,000 which will be increased to Rs 50,000, from FY 2018-19

(AY 2019-20) onwards.

o Under Section 80D an assessee, being an individual or a Hindu undivided family, can claim a deduction

in respect of payments towards annual premium on health insurance policy, preventive health check-

up or medical expenditure in respect of senior citizen (above 60 years of age).

o As of FY 2017-18, only Very Senior Citizens (who are above 80 years of age), can claim a deduction of

up to Rs 30,000 incurred towards medical expenditure, in case they don’t have health insurance. The

Budget 2018 has increased this to Rs 50,000 and also allowed the same flexibility to senior citizens.

Even individuals who pay premiums for their dependent senior citizens parents can claim the additional

deduction on health insurance premium (or) medical expenditure.

• Single premium Health Insurance policy / Multi-year Mediclaim policy :

o In case of single premium health insurance policies having cover of more than one year, it is proposed

that the deduction shall be allowed on proportionate basis for the number of years for which health

insurance cover is provided, subject to the specified monetary limit.

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The below revised limits are applicable for Financial Year 2018-2019 (or) Assessment Year (2019-2020)

u/s 80D.

Preventive health checkup (Medical checkups) expenses to the extent of Rs 5,000/- per family can be claimed

as tax deductions. Remember, this is not over and above the individual limits as explained above. (Family

includes: Self, spouse, parents and dependent children).

Section 80DD

You can claim up to Rs 75,000 for spending on medical treatments of your dependents (spouse, parents, kids

or siblings) who have 40% disability. The tax deduction limit of upto Rs 1.25 lakh in case of severe disability

can be availed.

To claim this deduction, you have to submit Form no 10-IA.

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Section 80DDB

An individual (less than 60 years of age) can claim upto Rs 40,000 for the treatment of specified critical

ailments. This can also be claimed on behalf of the dependents. The tax deduction limit under this section

for Senior Citizens and very Senior Citizens (above 80 years) has been revised to Rs 1,00,000.

To claim Tax deductions under Section 80DDB, it is mandatory for an individual to obtain ‘Doctor Certificate’

or ‘Prescription’ from a specialist working in a Govt or Private hospital.

For the purposes of section 80DDB, the following shall be the eligible diseases or ailments:

• Neurological Diseases where the disability level has been certified to be of 40% and above;

(a) Dementia

(b) Dystonia Musculorum Deformans

(c) Motor Neuron Disease

(d) Ataxia

(e) Chorea

(f) Hemiballismus

(g) Aphasia

(h) Parkinson’s Disease

• Malignant Cancers

• Full Blown Acquired Immuno-Deficiency Syndrome (AIDS) ;

• Chronic Renal failure

• Hematological disorders

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1. Hemophilia

2. Thalassaemia

Section 80CCG

Tax Benefits of Rajiv Gandhi Equity Savings Scheme (RGESS) under section 80CCG has been withdrawn.

However, if an investor has invested in the RGESS scheme in FY 2016-17 (AY 2017-18), they can

claim deduction under this Section until AY 2019-20.

Section 24 (B) (Loss under the head Income from House Property)

• From FY 2017-18, the Tax benefit on loan repayment of second house is restricted to Rs 2 lakh per annum only

(even if you have multiple houses the limit is still going to be Rs 2 Lakh only and the ceiling limit is not per house

property).

• The unclaimed loss if any will be carried forward to be set off against house property income of subsequent 8

years. In most of the cases, this can be treated as ‘dead loss‘.

• I believe that this is a major blow to the investors who have bought multiple houses on home loan(s) with an

intention to save taxes alone.

• Until FY 2016-17, interest paid on your housing loan is eligible for the following tax benefits ;

o Municipal taxes paid, 30% of the net annual income (standard deduction) and interest paid on the loan

taken for that house are allowed as deductions.

o After these deductions, your rental income can be NIL or NEGATIVE and is called ‘loss from house

property’ in the latter case.

o Such loss is currently allowed to be set off against other heads of income like Income from Salary or

Business etc. which helps you to lower you tax liability

substantially.

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Section 80E

If you take any loan for higher studies (after completing Senior Secondary Exam), tax deduction can be

claimed under Section 80E for interest that you pay towards your Education Loan. This loan should have been

taken for higher education for you, your spouse or your children or for a student for whom you are a legal

guardian. Principal Repayment on educational loan cannot be claimed as tax deduction.

There is no limit on the amount of interest you can claim as deduction under section 80E. The deduction is

available for a maximum of 8 years or till the interest is paid, whichever is earlier.

Section 80EE

This was a new proposal which had been made in Budget 2016-17. The same will be continued in FY 2018-19

/ AY 2019-20 too. First time Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home

loan interest payments u/s 80EE. The below criteria has to be met for claiming tax deduction under section

80EE.

• The home loan should have been sanctioned during / after FY 2016-17.

• Loan amount should be less than Rs 35 Lakh.

• The value of the house should not be more than Rs 50 Lakh &

• The home buyer should not have any other existing residential house in his name.

Section 80G

Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under

Section 80G of the Income Tax Act. This deduction can only be claimed when the contribution has been made

via cheque or draft or in cash. In-kind contributions such as food material, clothes, medicines etc do not qualify

for deduction under section 80G.

The donations made to any Political party can be claimed under section 80GGC.

W.e.f FY 2017-18, the limit of deduction under section 80G / 80GGC for donations made in cash is reduced

from current Rs 10,000 to Rs 2,000 only.

If you want to donate some fund to a political party of your choice, you can do so in cash of up to Rs 2,000.

Beyond that you can not donate the amount in cash mode. It can be done through Electoral Bonds.

Section 80GG

The Tax Deduction amount under 80GG is Rs 60,000 per annum. Section 80GG is applicable for all those

individuals who do not own a residential house & do not receive HRA (House Rent Allowance).

The extent of tax deduction will be limited to the least amount of the following;

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• Rent paid minus 10 percent the adjusted total income.

• Rs 5,000 per month.

• 25 % of the total income.

(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%. It has been proposed that the tax 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.)

Rebate under Section 87A

Tax rebate of Rs 2,500 for individuals with income of up to Rs 3.5 Lakh has been proposed in Budget 2017-

18 and the same will be continued for FY 2018-19 / AY 2019-20 as well.

• Only Individual Assesses earning net income up to Rs 3.5 lakhs are eligible to enjoy tax rebate u/s 87A.

• For Example : Suppose your yearly pay comes to Rs 4,50,000 and you claim Rs 1,50,000 u/s 80C. The total net

income in your case comes to Rs 3,00,000 which makes you eligible to claim tax rebate of Rs 2,500.

• The amount of tax rebate u/s 87A is restricted to maximum of Rs 2,500. In case the computed tax payable is

less than Rs 2,500, say Rs 2,000 the tax rebate shall be limited to that lower amount i.e. Rs 2,000 only.

• The Tax Assesse is first required to add all incomes i.e. salary, house income, capital gains, business or

profession income and income from other sources and then deduct the eligible tax deduction amounts u/s 80C

to 80U and under section 24(b) (Home Loan Interest) to come up with the net taxable income.

• If the above net taxable income happens to be less than Rs 3.5 lakhs then the tax rebate of Rs 2,500 comes in

to the picture and should be deducted from the calculated total income tax payable.

Section 80 TTA & new Section 80TTB

For Senior Citizens, the Interest income earned on Fixed Deposits & Recurring Deposits (Banks / Post office

schemes) will be exempt till Rs 50,000 (FY 2017-18 limit is up to Rs 10,000). This deduction can be claimed

under new Section 80TTB. However, no deductions under existing 80TTA can be claimed if 80TTB tax

benefit has been claimed (the limit for FY 2017-18 & FY 2018-19 u/s 80TTA is Rs 10,000).

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.

Interest income from deposits held with companies will not benefit under this section. This means, senior

citizens will not get this benefit for interest income from corporate fixed deposits us/ 80TTB.

Section 80U

This is similar to Section 80DD. Tax deduction is allowed for the tax assessee who is physically and mentally

challenged.

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Standard Deduction of Rs 40,000 in-lieu of Medical Allowance – Budget 2018

For FY 2017–18, the medical allowance of up to Rs 15,000 is exempted income from your Gross salary. To

claim this, you need to submit medical bills to your employer and get the allowance benefit. The medical

reimbursement allowance is exempted under Section 10 of the Income Tax Act.

If you have submitted medical bills (to your employer) towards medical allowance and also paid premium

towards your mediclaim (health insurance) then both of them will be listed in your Form-16 under different

sections as shown below (click on the images to open them in new browser window).

From FY 2018-19, a standard deduction of Rs 40,000 in lieu of travel, medical expense reimbursement and

other allowances has been proposed for salaried employees and pensioners. To claim this standard deduction,

there is no need to submit medical bills to your employer.

As per this new proposal, irrespective of amount of taxable salary the assessee will be entitled to get a

deduction of Rs.40,000 or taxable salary, whichever is less. Thus suppose if a person has worked for few days

(or) months and his salary was just Rs 40,000 for a previous year, then he will be entitled to deduction equal to

salary being the same amount. If his salary is less, say Rs 30,000 the deduction shall be restricted to Rs 30,000.

If salary exceeds amount of Rs 40,000, the deduction shall be restricted to Rs 40,000.

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Conclusion

It is prudent to avoid last minute tax planning. Do not invest in low-yielding life insurance polices or in any

other financial products just to save taxes. It is better you plan your taxes based on your financial goals at the

beginning of the Financial Year itself. Plan your taxes from April 2018 itself, instead of waiting until late

December 2018 (or) January 2019.

It is OK to pay some taxes when you can not save or cannot invest in right financial products. But, do not

invest just to save TAXES. The cost of buying wrong financial products may outweigh the cost of taxes. Tax

Planning is not a goal but a tool. Remember “Tax Planning alone is not Financial Planning.”

Also, kindly understand the tax treatment of the selected investment products across the different investment

stages (i.e., investment, accrual & withdrawal) and then invest. (Read : ‘Tax treatment of various Financial

Investments‘)

I believe that the above list is useful for your Tax Planning purposes. Kindly note that these Income Tax

Exemptions are applicable for financial year 2018-2019 (or Assessment Year 2019-2020).

Latest Income Tax Slab Rates FY 2018-19

The income tax slabs & rates are categorized as below;

* Individual resident aged below 60 years.

* Senior Citizen (Individual resident who is of the age of 60 years or more but below the age of 80 years at any

time during the previous year) &.

*Super Senior Citizen (Individual resident who is of the age of 80 years or more at any time during the

previous year).

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Budget 2018-19 : Key Highlights

Below are the latest proposals that have been made in Budget 2018-19 ;

• Income Tax Slabs : No change has been proposed on tax slab rates.

• Standard Deduction : A standard deduction of Rs 40,000 in lieu of travel, medical expense reimbursement and

other allowances has been proposed for salaried employees and pensioners.

• Increase in Cess : Currently, there is 3% cess on personal income tax (2% for primary education and 1% for

secondary and higher education). This will be replaced with 4% Health & Education Cess.

• Senior Citizens & Income Tax exemptions :

o The Interest income earned on Fixed Deposits & Recurring Deposits (Banks / Post office schemes) will

be exempt till Rs 50,000 (current limit is up to Rs 10,000). This deduction can be claimed under new

Section 80TTB. However, no deductions under existing 80TTA can be claimed (the current limit for FY

2017-18 u/s 80TTA is Rs 10,000).

o Currently, if interest income on Bank/Post office deposits is more than Rs 10,000, TDS is deducted u/s

194A. Budget 2018-19 has proposed to raise the threshold for deduction of tax at source on interest

income for senior citizens from Rs 10,000 to Rs 50,000.

o The premium paid on health insurance plans by senior citizens of up to Rs 50,000 can be claimed as tax

deduction under Section 80D (current limit is Rs 30,000).

o The limit under section 80DDB has been proposed at Rs 1 lakh towards medical expenses, for

treatment of Critical Illnesses.

o The maximum investment under Pradhan Mantri Vaya Vandana Yojana has been increased to Rs 15

Lakh.

• No Section 80TTA Benefit : 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.

• Single/Multiple year Premium Health Insurance Policy : In case of single premium health insurance policies

having cover of more than one year, it is proposed that the deduction shall be allowed on proportionate basis

for the number of years for which health insurance cover is provided, subject to the specified monetary limit.

• Long Term Capital Gains on Shares & Equity Mutual Funds :

o The Budget 2018-19 has proposed to introduce tax on Long Term Capital Gains on sale of stocks and

equity mutual fund units.

o LTCG tax at 10% on gains of above Rs 1 lakh from Equities & Equity mutual funds.

o No change has been proposed to STT tax rate.

o No change has been proposed to holding period to arrive at LTCG/STCG.

o STCG will continue to be taxed at 15%.

o Any LTCG accrued on Stocks/Equity funds up to 31-Jan-2018 are tax-free, if held for 1 year period.

� For Example : If the equity share is purchased 6 months before 31st January 2018 at Rs 1,000

and the highest price quoted on 31st Jan is Rs 1,200. There will be no tax on the sale, if the

stock is sold after 1 year.

� However, any gains in excess of Rs 200 earned after 31st Jan 2018 will be taxed at 10% if this

share is sold after 31st July 2018.

o Equity Oriented Mutual Funds will now have to pay a dividend distribution tax (DDT) of 10%. (Read :

‘10% LTCG Tax on sale of Stocks/Equity Mutual Funds.’)

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• The Bonds issued u/s 54EC for saving of LTCG on sale of property will now have a lock-in period of 5 years

instead of 3 years from fY 2018-19.

• The four state-owned general insurance companies namely : New India Assurance, Oriental Insurance, National

Insurance and United India may be merged into one Entity and the new entity would be listed on the Stock

exchanges.

• Gold Monetization Schemes to be revamped.

• Budget 2018-19 has proposed to keep the EPF deduction at 8% (instead of 12%) for women employees, in the

first 3 years of their employment.

• Govt to pay Employer’s contribution 12% of wages to EPF for new employees of all sectors in the first three

years of employment to boost job creation.

• The new budget has proposed to launch National Health Protection Scheme, to provide Rs 5 Lakh health

insurance cover for 10 cr poor families. This can benefit 50 crore individuals in India.

• Loans to the tune of Rs 3 lakh crore would be sanctioned under Pradhan Mantri Mudra Yojana during the FY

2018-19.

Mutual Funds Capital Gains Taxation Rules FY 2018-19 (AY 2019-20) |

Capital Gains Tax Rates Chart

Capital asset typically refers to anything that you own for personal or investment purposes. It includes all kinds

of property; movable or immovable, tangible or intangible, fixed or circulating.

Capital assets are further classified as Financial Assets and Non-Financial Assets. Financial assets are

intangible and represent the monetary value of a physical item.

Stocks (Shares) and mutual funds are the best examples of Financial Assets.

The profit (if any) that you make on your mutual fund investments when you redeem or sell the MF units is

referred to as Capital Gains. It can be a Short Term Capital Gain (STCG) or a Long Term Capital Gain

(LTCG) depending upon the ‘Period of Holding’. The tax that is applicable on these profits is known as

‘Capital Gains Tax’.

In this post let us understand: What are the factors that determine the tax status of mutual funds? What are

the tax implications on mutual fund investments? What are the Budget 2018-19 proposals related to Mutual

Funds Taxation? – Mutual funds taxation & capital gains tax rates on mutual funds for Financial year 2018-

2019 (Assessment year 2019-2020).

Factors determining the tax status of mutual funds

The capital gains tax on mutual fund withdrawals is based on the factors as below;

1. Residential Status

2. Fund Type (whether the fund is an Equity-oriented fund (or) a Non-Equity Oriented Fund)

3. Holding Period (Duration of your investment)

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1. Residential Status & Mutual Funds Taxation

The capital gains tax rates are determined based on the residential status of an individual / investor. Residential

status can be either ‘Resident Indian’ or ‘Non-Resident India” (NRI). (Related article : ‘Residential Status

online calculator.’)

2. Type of Funds & Mutual Funds Taxation

What are Equity-oriented Mutual Funds? – MF schemes that invest at least 65% of its fund corpus into equity

and equity related instruments are known as equity mutual funds. Examples are : Large cap, ELSS tax saving

funds, Mid-cap, Balanced funds (equity oriented), Sector funds etc.,

What are Non-Equity Mutual Funds? – MF schemes that hold less than 65% of their portfolio in equities and

equity related instruments are known as Non-Equity Funds / Debt funds. Examples are : Liquid Mutual funds,

Money Market funds, Gold funds, Infrastructure debt funds, MIPs, FMPs, Hybrid funds (Debt oriented) etc.,

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3. Period of Holding & Capital Gains on Mutual Funds

Capital gains on Mutual funds could be either long term capital gains or short term capital gains, depending on

your investment horizon.

• Long Term Capital Gains

o 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.

o If you make a gain / profit on your investment in a Non-Equity Mutual Fund scheme (or in a Debt Fund)

that you have held for over 3 years, it will be classified as Long Term Capital Gain.

• Short Term Capital Gains

o If your holding in a 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.

o 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.

Budget 2018-19 & Mutual Fund Taxation

• The Budget 2018-19 has proposed to introduce tax on Long Term Capital Gains on sale of stocks and equity

mutual fund units from FY 2018-19 (or) AY 2019-20 onwards.

• LTCG tax at 10% on gains of above Rs 1 lakh from Equities & Equity mutual funds.

• No change has been proposed to STT tax rate structure.

• No change has been proposed to holding period to arrive at LTCG/STCG.

• STCG will continue to be taxed at 15%.

• Equity Oriented Mutual Funds will now have to pay a dividend distribution tax (DDT) of 10%. (Read : ‘10% LTCG

Tax on sale of Stocks/Equity Mutual Funds | How are Capital Gains calculated on Investments made before 01-

Feb-2018?’)

Mutual Funds Capital Gains Taxation Rules FY 2018-19 | Latest Mutual Funds Capital

Gains Tax Rates AY 2019-20

Capital Gains Tax Rates on Mutual Fund Investments of a Resident Indian are as below;

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• The STCG (Short Term Capital Gains) tax rate on equity funds is 15%.

• The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate.

• The LTCG (Long Term Capital Gains) tax rate on equity funds is 10% on LTCG exceeding Rs 1 Lakh.

• The LTCG tax rate on non-equity funds is 20% (with Indexation benefit)

Capital Gains Tax Rates on NRI Mutual Fund Investments for the Financial Year 2018-19 (Assessment Year

2019-20) are as below;

• The STCG tax rate on equity funds is 15%.

• The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate. (Tax

Deducted at Source – TDS @ 30% is applicable)

• The LTCG tax rate on equity funds is 10%, on LTCG exceeding Rs 1 Lakh.

• The LTCG tax rate on non-equity funds is 20% (with Indexation) on listed mutual fund units and 10% on unlisted

funds.

Base Year & Indexation : As per Budget (2017-18), the base year for calculation of Indexation has been

changed to 2001. It has an affect (mostly positive) on investments where indexation benefit is available when

calculating Capital gain taxes.

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• For example: Suppose you are holding on to your investments made in debt funds (or) Property before 2001,

the Fair Market Value (NAV) as on 1 st April, 2001 will be considered as cost of acquisition for calculating capital

gains. This will help the investor to reduce the capital gains taxes.

• As of now, the base year is 1981. To calculate the capital gains at the time of selling any Deb fund units /

property purchased before 1981, its purchase price is now calculated on the basis of the fair market value of

1981. Calculation at the fair market value of 2001 will increase the cost of acquisition and lower the capital

gain.

(How do you calculate the indexed cost of purchase? The indexed cost is calculated with the help of above

table of cost inflation index.

Divide the cost at which you purchased the Mutual Fund units by the index as on the date of the purchase.

Multiply this by the index as on the date of sale.

For Example : If purchase year is 2011 and year of sale is in Financial Year 2015. Then indexed cost of

purchase would be –

Indexed cost of purchase = (Purchase price / 184) * 254.)

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Taxation of Mutual Fund Dividends

• Dividends on Equity Mutual Funds : The dividend received in the hands of an unit holder for an equity mutual

fund is completely tax free. However, w.e.f. FY 2018-19, the fund houses have to pay 10% Dividend

Distribution Tax (DDT) on equity oriented mutual fund schemes. (Effective DDT rate is 11.648% inclusive of 12%

surcharge & 4% cess.)

• Dividends on Debt Funds : The dividend income received by a debt fund unit holder is also tax free. But, the

mutual fund company has to pay a dividend distribution tax (DDT) before distributing this dividend income to

its Unit-holders. DDT on Debt Mutual Funds is 29.12% (inclusive of surcharge & cess).

NRI Mutual Fund Investments & TDS Rate

Below are the TDS rate applicable on MF redemptions by NRIs for AY 2019-20.

Hope this post is informative. Do you check your capital gains statement(s) every year? Do you include your

capital gains taxes (if any) in Income Tax Returns (ITR). Share your comments.

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Extra Detail: -

How to save Capital Gains Tax on Sale of Land / House Property?

Capital asset typically refers to anything that you own for personal or investment purposes. It includes

all kinds of property; movable or immovable, tangible or intangible, fixed or circulating.

Examples include a house, land, household furnishings, stocks, bonds or mutual funds held as

investments etc.,

When you sell a capital asset, the difference between the purchase price of the asset and the amount you

sell it for is a capital gain or a capital loss. Capital gains and losses are classified as long-term or

short-term.

If Land or house property is held for 36 months or less then that Asset is treated as Short Term Capital Asset.

You as an investor will make either Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL) on

that investment.

If Land or house property is held for more than 36 months then that Asset is treated as Long Term Capital

Asset. You will make either Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) on that

investment.

You may have to pay Capital Gains Tax on STCG / LTCG.

In this post let us understand – How to calculate Short Term capital gains on sale of land or property? How to

calculate Long Term Capital Gains on sale of land or house? What are the applicable capital gain tax rates on

sale of land / house property? How to avoid / save / minimize capital gains tax on sale of land or flat?

How to calculate Capital Gains on sale of Land or House property?

Short Term Capital Gains Calculation is calculated as below:

STCG = Total Sale Price – Cost of acquisition – expenses directly related to sale – cost of improvements.

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Long Term Capital Gains Calculation;

The LTCG calculation is similar to STCG. The only differences are, you are allowed to deduct Indexed Cost of

Acquisition/Indexed Cost of Improvements from the sale price and also claim certain exemptions to save

capital gains tax.

(Indexation is done by applying CII – cost inflation index. This increases your cost base ie purchase price and

lowers your gains. Your purchase price is adjusted for the impact of inflation.

How do you calculate the indexed cost of purchase? The indexed cost is calculated with the help of a table of

cost inflation index.

Divide the cost at which you purchased the Property by the index as on the date of the purchase. Multiply this

by the index as on the date of sale.

For Example : If purchase year is 2011 and year of sale is in Financial Year 2015. Then indexed cost of

purchase would be –

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Indexed cost of purchase = (Purchase price / 785 ) * 1081. Below is the Cost Inflation Index Table from 1981

to FY 2015-16 for your

reference.)

(Latest Cost Inflation Index for FY 2016-17. CBDT has notified Cost Inflation Index for Financial Year 2016-

17 / Assessment Year 2017-18 at 1125 . Cost Inflation Index for Financial Year 2015-16 was 1081, so it’s an

increase of 44 in Cost Inflation Index.)

Applicable Capital Gains Tax Rates on Sale of Property

• Short Term Capital Gains are included in your taxable income and taxed at applicable income tax slab rates.

• Long Term Capital Gains are taxed at 20%.

How do I save Capital Gains Tax from sale of Property?

Capital gains tax on Short term gains is unavoidable and no exemptions are available to minimize your tax

liability. However, you can claim deductions to lower the tax liability on long-term gains.

How to save Capital Gains Tax by claiming Exemption u/s Section 54EC? (Applicable to LTCG only, on

sale of both land / house property / commercial property)

• Capital gains from sale of any long-term asset can be claimed as tax-exempt under Section 54EC of the Income-

Tax Act by investing in notified bonds within six months of the transfer of Asset.

• These bonds are issued by the Rural Electrification Corporation and the National Highways Authority of India.

• The exemption is equal to the investment or the capital gain, whichever is lower. If you transfer or take a loan

against these bonds within three years, the capital gain will become taxable.

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• These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of

the house property.

• You are allowed a period of 6 months to invest in these bonds, but before the Income Tax Return filing date (to

claim this exemption).

• You can invest a maximum of Rs 50 lakh during a financial year in these bonds as per Budget 2015-16.

How to save Capital Gains Tax by claiming Exemption u/s Section 54? (Applicable to LTCG on sale of

house property only)

You can use the entire Long Term Capital Gain proceeds on sale of a residential house to buy another house

property (residential property) to save Capital Gains tax. Below conditions need to be satisfied though;

• The new house has to be bought one year before (under-construction property) the transfer of the first house

or within two years after the sale. (For an Under construction property or flat , the construction has to be

completed within three years of the transfer of the first property.)

• The deduction allowed is equal to the actual investment or the capital gain, whichever is lower.

• If you plan to use the gain to build a house, it has to be done within three years of the sale of the property. Do

note that ‘cost of land’ can be included in the construction cost.

How to save Capital Gains Tax u/s 54F? (Conditions applicable to LTCG on sale of Land or Commercial

Property)

Below conditions need to be satisfied in case you sell land and are planning to buy a residential home.

• You can use the entire sale proceeds (received by selling a plot / land) to buy a new house or to build a new

residential house.

• If you use a part of the money, the deduction will be proportion of the invested amount to the sale price.

• The time-frame for investment is the same as that for capital gains from residential property.

• You should not own more than one residential house prior to this investment.

• The deducted capital gain (from sale of land) becomes taxable if you buy another house (other than the new

one) within two years of the transfer of the original asset or construct a new one within three years.

• If the new house is sold within three years, the deduction claimed will become taxable as a long-term gain.

• This new house purchased or constructed must be situated in India.

• The proceeds should not be invested in a commercial property or in another vacant

plot.

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How to Save Long Term Capital Gains Tax without buying another House Property?

If you are unable to invest the sale proceeds in any of the above options before the date of income tax returns

filing , you can deposit the CAPITAL GAINS (not entire sale proceeds) amount in a public sector bank or

other banks as per the Capital Gains Account Scheme- CGAS, 1988.

• The capital gain (full amount or utilized amount) can be deposited in CGAS account.

• This is only a stop-gap arrangement, as the funds have to be used to buy or build a house within the period

specified.

• The deposited money can be used only to buy or construct a residential house within the prescribed time

frame.

• If you withdraw funds from this account, they have to be used within 60 days.

• If you do not utilize the amount within three years of the sale of the first property, such un-utilized amount will

be treated as LTCG this will lead to taxation of the unutilized amount as long-term capital gain after three years

of the sale of the first / original property.

• The interest rates paid on these accounts are the same as those on regular savings and term deposits. Kindly

note that interest earned on this account is taxable.

Important points on Capital Gains Tax & Sale of Land / Home

• Agricultural land in a rural area in India it is not considered a Capital Asset, and therefore no capital gains are

applicable on its sale.

• While calculating capital gains, expenses related to transfer / sale like advertisement expenses, brokerage

expense, Stamp duty, Sale deed registration fees, Legal (lawyer) expenses etc., can be deducted from the

Purchase price.

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• Sale of a property that is inherited or accepted as a gift will also attract capital gain/loss provisions even

though you haven’t spent any money to acquire it. In such a case, capital gains will be computed on the basis of

the cost to the previous owner, indexed to the year of purchase.

• If the cost of the new residential property is lower than the total sale amount, then the exemption is allowed

proportionately.

• The new property must only be bought on the name of the seller and not on anybody else’s name. Joint

ownership can be acceptable but exemption can be limited to the share of ownership.

• You must also remember that you are allowed to purchase or construct only one new asset from the capital

gain that accrues. This means that you cannot make multiple property acquisitions and thus seek to reduce

your tax outgo. However, if you sell more than one property, you can invest the resulting cumulative capital

gain amount in a single new property.

• If you use the capital gain amount to clear loans then tax on LTCG cannot be saved. No exemptions can be

claimed.

• Capital Gain Tax cannot be saved if the sale proceeds are invested in a commercial property, agricultural land

or plot.

• According to the latest amendments in the Income Tax Act, the residential property which is bought by re-

investing the long-term capital gains must be situated in India.If you would like to buy a property outside India

say in the US, you need to pay tax on the capital gain portion of the sale proceeds.

To summarize;

• Categorize your capital gains i.e., Short term or Long term.

• Calculate Short Term Capital Gains (STCG) / Long Term Capital Gains (LTCG).

• If you have STCG, taxes are payable as per your income tax slab rate.

• If you have LTCG, to save capital gains tax ;

o You may invest the gains in another Residential property (or)

o Buy Notified Bonds (or)

o Temporarily invest in Capital Gains Account Schemes.

• Else, you have to pay 20% on your Long Term Capital Gains.

Calculation of Capital Gains Tax on sale of property can be sometimes be a tricky one. It is advisable to

exercise caution when claiming Capital Gains Tax Exemptions. When in doubt, kindly consult a tax expert or a

Chartered Accountant.

Note:- All Above things for your knowledge only may all calculation of Section is not available in software but the

final amount of section you will describe or enter same will give effect in calculation

tds 2018 - 2019 list of important income tax...

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