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Everything You Need to Know About Income Tax Rates

Income tax can take a big byte out of your investment return. We help you understand how to protect your return.

Taxes can significantly reduce the return you get from your investments. We help you understand how you can protect your returns.

Assuming you fall in the maximum tax bracket of 30%, (based on the tax saving scheme in India):

1. Interest Income From Bank Savings, Fixed Deposits, Securities And Any Other Source

  • Interest is applicable on actual or accrued income. Accrued income means that you pay tax even though you haven't received the interest yet. On March 31, the bank will deduct TDS @ 10% on the unpaid portion of your interest on Fixed Deposits.
  • Bank Interest up to Rs 10,000 is exempt from TDS
  • Tax at the maximum marginal rate is applicable on interest income. For example, Interest on your fixed deposits will be taxed at 30%

2. Dividend Income From Shares and Equity Mutual Funds

  • You don't have to pay any income tax on dividend income received by you
  • However, the company or mutual fund paying you the dividend needs to deduct and pay Dividend Distribution Tax (DDT) to the government. Additionally, surcharge & education cess are applicable.
  • So if the mutual fund pays Rs 100 as the dividend, they will pay Rs 22.38 as DDT to the government and pay Rs 77.62 to you as a dividend.
  • DDT therefore, works like TDS except that you can't claim credit for it while filing taxes.

3. Dividend Income From Debt and Other Non-equity Mutual Funds

  • Non-equity mutual funds include gold funds and fund of funds.
  • You don't have to pay any income tax on dividend income received by you
  • However, the company or equity mutual fund paying you the dividend needs to deduct and pay Dividend Distribution Tax (DDT) to the government in all cases.

4. Capital Gains On Property, Gold, Unlisted Securities

  • The difference between purchase price and the sale price is defined as capital gain.
  • If you buy and sell within 2 years, then short-term capital gains are taxed at the marginal rate i.e. a tax rate of 30% applies in this example.
  • If you sell after 2 years, then the long-term capital gains tax rate is 20% with indexation benefit.

5. How to save Capital Gains tax On Listed Equities, Equity Mutual Funds, and Listed Fixed Income Securities

  • The difference between purchase price and the sale price is defined as capital gain.
  • The sale is subject to Securities Transaction Tax.
  • Definition of long term is more attractive. Holding period of more than 1 year qualifies as long-term for tax purposes.
  • If you buy and sell within 1 year, then a lower short-term capital gains tax of 15% applies.
  • If you sell after 1 year, long-term capital gains tax is zero.

6. Capital Gains On Debt Mutual Funds, Hybrid mutual funds, Gold funds, International Funds, Funds Of Funds

  • The difference between purchase price and sale price is defined as capital gain
  • If you buy and sell within 3 years, then short-term capital gains are taxed at the marginal rate i.e. a tax rate of 30% applies in this example
  • If you sell after 3 years, then long-term capital gains tax rate is 20% with indexation benefit

table 1 AHow does this affect return on your investments?

table 2 A

table 3 A

This is complicated stuff and something most investors overlook while planning their investments. So, at Scripbox, we've built the appropriate algorithms right into your account helping you manage your taxes better.

Note: We update this article every year after the annual budget to reflect the latest tax rates and structure.

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