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Avail Tax Exemptions on Stock Investments

Equity is an attractive investment option, for not only is it likely to fetch high returns, but also offers welcome tax breaks.

Here’s a ready reckoner on the tax deductions and tax exemptions that you are entitled to in various stock instruments, whether you invest directly or indirectly.

Direct Investments

 

 

Stocks

> No lock-in period.> Long-term capital gains are tax-free.

> Short-term capital gains are taxed at 15%.

> Short-term capital gains can be offset against short-term losses.

> Short-term capital losses can be carried forward for up to eight years.

> Dividends are tax-free but bonus shares are taxed if sold within a year.

 

 

RGESS

> A lock-in period of three years.> Deduction of 50% of investment up to Rs 50,000 in specified shares.

> Available only to first-time investors who have an income of less than Rs 12 lakh a year.

> In the first year, investors can’t sell shares. After this period, shares can be sold but proceeds are to be reinvested.

> Long-term capital gains are tax-free.

Indirect Investments

 

 

Mutual Funds

Equity and balanced mutual funds> There is no lock-in period.

> Long-term capital gains are tax-free.

> Short-term capital gains are taxed at 15%.

> Short-term capital gains can be offset against short-term losses.

> Short-term capital losses can be carried forward for up to eight years.

> Dividends received are tax-free.

 

ELSS

> A lock-in period of three years.> An investment of up to Rs 1 lakh gets deduction under Section 80C.

> Long-term capital gains are tax-free.

> Dividends received are tax-free.

 

 

RGESS Funds

> A lock-in period of three years.> Deduction of 50% of investment up to Rs 50,000.

> Available only to first-time investors with income below Rs 12 lakh a year.

> Long-term capital gains are tax-free.

> Dividends received are tax-free.

Insurance

 

 

ULIPs

> A lock-in period of 3-5 years.> A premium of up to Rs 1 lakh gets deduction under Section 80C if life cover is 10 times the annual premium.

> No tax incidence while switching from one fund option to another.

> Partial withdrawals are tax-free.

> Maturity amount is tax-free if life cover is 10 times the annual premium.

 

 

Pension

Unit-linked pension plans> The lock-in period is till vesting age.

> Premium of up to Rs 1 lakh gets deduction under Section 80C.

> No tax incidence while switching from one fund option to another.

> No tax on 33% of the corpus withdrawn on maturity.

> The rest has to be invested in annuity.*

 

 

 

NPS

> The lock-in period is till the age of 60.> An investment of up to Rs 1 lakh gets deduction under Section 80C.

> An investment of up to 10% of the basic salary is eligible for further deduction under Section 80CCD(2).

> No tax incidence while switching from one fund option to another or from one fund manager to another.

> No tax on 60% of the corpus withdrawn on maturity.

> The rest has to be invested in annuity.*

* Annuity income is currently taxable, but could be made tax-free.

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