All financial instruments go through three stages—investment, earning and withdrawal. Since the tax rules vary across these phases, find out how much tax you will have to pay on your investments.
E E E
The Exempt-Exempt-Exempt model means all three stages are tax-free. You get tax deduction at the time of investment, the earnings are tax-free, as are the withdrawals.
PF and VPF
This is the most common investment. The interest rates are decided by the EPFO Trust.
PPF
This assured return scheme is market linked, with a Rs 1 lakh annual investment limit.
Insurance policies
Budget 2012 says that for tax benefits, the cover should be 10 times the annual premium.
ELSS funds
Tax-saver with the shortest lock-in period of three years may get scrapped under the DTC.
The Exempt-Exempt-Exempt model means all three stages are tax-free. You get tax deduction at the time of investment, the earnings are tax-free, as are the withdrawals.
PF and VPF
This is the most common investment. The interest rates are decided by the EPFO Trust.
PPF
This assured return scheme is market linked, with a Rs 1 lakh annual investment limit.
Insurance policies
Budget 2012 says that for tax benefits, the cover should be 10 times the annual premium.
ELSS funds
Tax-saver with the shortest lock-in period of three years may get scrapped under the DTC.
E E T
The Exempt-Exempt-Tax regime gives tax deduction at the time of investment and the earning is tax-free, but withdrawal is taxed as income at marginal rate.
Unitlinked pension plans
Up to 33% of pension corpus withdrawn on maturity is taxfree. Rest to be put in annuity.
Pension policies
Annuity income is taxable as income at the normal rate applicable to the investor.
NPS
Launched with much fanfare, it has not done too well. May be overhauled and improved soon.
The Exempt-Exempt-Tax regime gives tax deduction at the time of investment and the earning is tax-free, but withdrawal is taxed as income at marginal rate.
Unitlinked pension plans
Up to 33% of pension corpus withdrawn on maturity is taxfree. Rest to be put in annuity.
Pension policies
Annuity income is taxable as income at the normal rate applicable to the investor.
NPS
Launched with much fanfare, it has not done too well. May be overhauled and improved soon.
E T E
The Exempt-Tax-Exempt arrangement offers tax deduction to investment but earning is taxed. The withdrawal is tax-free given that tax is paid at the growth stage.
NSCs
These are now marketlinked like the PPF and available in five- and 10-year options.
Tax-saving FDs
Best tax-saving option for risk-averse investors. Higher rates for senior citizens.
Senior Citizens Savings Scheme
A popular option that is now market-linked, and has an investment limit of Rs 15 lakh per person.
The Exempt-Tax-Exempt arrangement offers tax deduction to investment but earning is taxed. The withdrawal is tax-free given that tax is paid at the growth stage.
NSCs
These are now marketlinked like the PPF and available in five- and 10-year options.
Tax-saving FDs
Best tax-saving option for risk-averse investors. Higher rates for senior citizens.
Senior Citizens Savings Scheme
A popular option that is now market-linked, and has an investment limit of Rs 15 lakh per person.
T E E
No tax deduction here for the investor. He invests post-tax income but the earning and withdrawal are tax-free if the investment is held for at least one year.
Stocks
If held for more than a year, no tax on capital gains. You pay 15% tax if sold before a year.
Equity funds
Just like stocks, there is no tax if held for more than a year. All dividends are tax-free.
Balanced funds
Though up to 40% of portfolio can be in debt, these enjoy the same tax benefits as equity funds.
Tax-free bonds
These bonds issued by infrastructure companies carry a low coupon rate.
No tax deduction here for the investor. He invests post-tax income but the earning and withdrawal are tax-free if the investment is held for at least one year.
Stocks
If held for more than a year, no tax on capital gains. You pay 15% tax if sold before a year.
Equity funds
Just like stocks, there is no tax if held for more than a year. All dividends are tax-free.
Balanced funds
Though up to 40% of portfolio can be in debt, these enjoy the same tax benefits as equity funds.
Tax-free bonds
These bonds issued by infrastructure companies carry a low coupon rate.
T E T
Here again, the investor puts in posttax income. While there is no tax during the growth stage, the earning is taxed at the time of withdrawal.
Nonequity hybrid funds
After a year, profit from sale is taxed at a lower rate of flat 10% or 20% after indexation.
Debt funds
Tax-efficient way of investing in debt. After a year, profits are treated as capital gains.
FMPs
Similar to FDs, but profits are taxed at a lower rate. Very popular among HNIs.
Here again, the investor puts in posttax income. While there is no tax during the growth stage, the earning is taxed at the time of withdrawal.
Nonequity hybrid funds
After a year, profit from sale is taxed at a lower rate of flat 10% or 20% after indexation.
Debt funds
Tax-efficient way of investing in debt. After a year, profits are treated as capital gains.
FMPs
Similar to FDs, but profits are taxed at a lower rate. Very popular among HNIs.
T T E
This is possibly the least tax-efficient regime, with no tax deduction offered and earning fully taxable. With income taxed every year, there is no tax at maturity.
Recurring deposits
Lock into high rates even if you don't have a lump sum. No TDS, so pay tax yourself.
Post office MIS
Monthly income is fully taxable without any TDS. Onus is on the investor to pay tax.
Fixed deposits
TDS only up to 10% if interest is more than Rs 10,000 a year. Here too, onus is on investor.
Bonds
Income from tax-saving bonds is taxable. Pay tax if you fall in higher bracket.
This is possibly the least tax-efficient regime, with no tax deduction offered and earning fully taxable. With income taxed every year, there is no tax at maturity.
Recurring deposits
Lock into high rates even if you don't have a lump sum. No TDS, so pay tax yourself.
Post office MIS
Monthly income is fully taxable without any TDS. Onus is on the investor to pay tax.
Fixed deposits
TDS only up to 10% if interest is more than Rs 10,000 a year. Here too, onus is on investor.
Bonds
Income from tax-saving bonds is taxable. Pay tax if you fall in higher bracket.
(ET source)
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