The previous post on capital gains mentions two ways of taxation for various asset classes- 10 % without indexation, and 20 % with indexation. What exactly is indexation, why is it required, and how to arrive at the indexed value? Let us find out –
“ The hardest thing to understand in the world is income tax”
These are the words of Albert Einstein, the world famous scientist and nobel prize holder. When one hears the term “tax”, one tends to visualize himself or herself going through pages and pages of complex calculations J. Of all the different type of taxes, today we will understand one of the complex ones-the capital gains tax. This is especially important, as the capital gains incurred on different assets like equity, gold, debt, property- all are taxed differently.
A client of mine called me up recently to tell me that her bank was offering an interest rate of more than 16 % pa on tax saving fixed deposits, and for senior citizens, it was even higher! This was informed to her by the customer service staff when she had been to her bank for some routine transactions. She was also given a printed paper/ad which asserted this fact.
Burdened with a high current account and fiscal deficit, the government took the easiest way out- and did what other developed countries like the U.S have done to revive the economy and raise resources for the development of the country- targeting the super rich. The budget 2013 has imposed a surcharge of 10 % on those earning taxable income of Rs. 1 crore and above.
Mr. Shah has been a Non Resident Indian for around 3 years now. When he took up the current assignment abroad, he did the usual banking formalities of converting his existing savings a/c in India into an NRO a/c. He had about 10 lakhs saved from his income earned in India, which he invested in an NRO fixed deposit @ 9.5 % p.a.At the end of the financial year, he realised that he had received only Rs 63,000/- as interest out of the Rs 95,000/- , and around 32,000/- has been deducted as taxes, at the applicable rate of 33.99 % p.a for NRO accounts. Now, Mr. Shah doesn’t actually have to pay tax, as he has no other Indian Income apart from this, and the total interest income is less than the exemption limit of Rs 1.5 lakhs p.a. Now, the only way he can claim this tax back is to go through the process of filing his returns which otherwise wasnt required.
There would hardly be anybody who invests in fixed deposits, but is not aware of these forms which are filled up and submitted at the time of opening the deposit for exemption from tax being deducted at source on the interest income earned.
The month of February and March is spent on investing in tax saving avenues to minimize the income tax outgo. While income tax rebate under section 80 C ( see prev. Post – “Income tax deductions under section 80 C “ for details) is fairly common and most people exhaust their Rs 1,00,00/- limit, there are other lesser known income tax sections for tax saving which are not availed of, mainly because of lack of awareness or just by oversight. Let us highlight these-