Types of taxes surrounding our investm

2. Capital Gain Tax
• Capital gains are the profits that an investor realizes
when he or she sells the capital asset for a price
that is higher than the purchase price.
• Capital gains taxes are only triggered when an asset
is realized, not while it is held by an investor.
• An investor can own shares that appreciate every
year, but the investor does not incur a capital gains
tax on the shares until they are sold.

3. Capital Assets
• Assets which are liable for capital gain taxes:
 Equity shares
 Bonds
 Gold
 Real Estate
 Paintings and Drawings
 Jewellery
 Archaeological Collections
 Sculptures

4. Computation

5. Long term capital gains (India)
A long-term capital gain arises when you hold any asset for a
defined period ranging from 1 year to 3 years.

6. Indexation
• Indexation is the art of removing the impact of inflation from the
profits and taxing the balance profits.
• The indexation figure is released by the Govt. every year and
based on these indexation figures, the impact of inflation on
the profits is removed.
• To reduce the impact of inflation on your investment,
indexation benefit is provided in calculating long-term capital
gains. Through this benefit you can adjust your capital gains
from inflation by applying an appropriate factor from cost
inflation index to the original units

8. Equity or Equity MF
• Equity Mutual Funds are those funds where equity holding is
more than 65% of the total portfolio so even balanced funds
will be categorized in Equity Funds.
• Long Term Capital gain on Equity Mutual Funds – if you buy &
hold an equity Mutual Fund for more than 1 year, there will be
No Tax levied.
• E.g: If you invest Rs1 lakh in XYZ Fund & after 1 year, its value
is Rs1.3 Lakh – there will be zero tax on capital appreciation of
Rs30000. This is a very big advantage of equity mutual funds.

9. Debt or Debt MF
 A debt fund is one which invest in short-term or
long-term bonds, securitized products, money
market instruments or floating rate debt..
 Tax on Long Term Capital gain on Debt Mutual
Funds – here taxation depends on whether investor
would like to use indexation or not.

10. Example
• Suppose, Bonds worth Rs 35,00,000 were
purchased in April 2007
• Selling price on April 2011 = Rs 50,00,000
• Long term capital gain: 50lakh- 35lakh= 15lakh
• Tax = 10% of 15 lakh = 1.5 lakh
• Education Cess = 3% of 1.5 lakh= Rs.4500
• Total tax payable= 1,54,500

11. Indexation benefits calculation
• Suppose, Bonds worth Rs 35,00,000 were purchased in April
2007
• Selling price on April 2011 = Rs 50,00,000
• Inflation Index:
» 2007-2008 = 551
» 2011-2012 = 785
• Indexed Purchase Cost- 35,00,000 x 785/551= Rs 49,86,388
• Long Term Capital Gains= 50,00,000-49,86,388 = Rs 13612*
• Tax on LTCG= 13612 x 20%= Rs 2722
• Education Cess= 2722 x 3% = Rs 82
• Total Tax on LTCG = Rs 2804
• Thus, the indexation benefit reduces the tax liability substantially
which otherwise would have been a huge payout for any investor.

12. Short term capital gain (India)
Investment in any asset class, if held for a very short period, is taxed as
short-term capital gains

13. Equity Example
This is how short-term capital gains are calculated:
• Cost of Equity units bought in 2011 - Rs 100,000
• Price of same units sold after 6 months - Rs
120,000
• Short Term Capital Gains - Rs 20,000
• Tax Applicable - 20,000 x 15%= Rs 3000
• Education Cess - 3000 x 3%=Rs 90
• Total Tax payable = Rs 3090

14. Debt Example
• Bonds worth Rs. 10 lakh were purchased and sold
at Rs.12lakh in the same year.
• Short term capital gain is Rs. 2lakh
• Investors income form other sources is Rs.1 lakh
• Total income for the year= 3 lakh
• Tax up to 2lakh is nil.
• And on rest 10% as per income tax slab.

15. Mutual Fund Dividend Taxation
 Again this taxation will depend on which type of Mutual Fund
you are investing in – Equity or Debt
 There is no dividend distribution tax on equity mutual funds &
also the dividend received by investors is tax free. So, again a
bonus for equity mutual fund investors.
 Even in case of Debt Mutual Funds – dividends received by
investor are tax free in their hand or they don’t need to show it
as a taxable income. But there is dividend distribution tax paid
by mutual funds to income tax department

16. Dividend Distribution Tax on Debt Mutual Funds
This taxation further depends on type of Debt Funds:
 Dividend Distribution Tax on Liquid/Money Market Schemes -
Liquid/Money Market Schemes means Debt oriented funds
which invest in money market instruments or in securities that
have maturity of less than 90 days. Here 27.038 %tax (25%
Tax + 5% Surcharge + 3%Cess) will be deducted from the
dividends.
 Dividend Distribution Tax on Debt Funds other than
Liquid/Money Market Schemes – Here 13.519 % tax (12.5%
Tax + 5% Surcharge + 3%Cess) will be deducted from the
dividends.

17. Securities Transaction Tax

18. Securities Transaction Tax
• All persons do not declare capital gains. Hence
government charges STT which is unavoidable.
• It is payable on value of all securities transacted
through a recognized stock exchange.
• It is to be paid by the seller of a futures contract on
the date of delivery on the value of the contact.
• An option seller pays STT on the premium and if the
option is exercised then the buyer has to pay STT
on the option value i.e. ST*No. of options.
• STT on cash segment is more than F&O segment.

19. Examples
• Suppose you buy 100 shares of SBI @ Rs. 1700 per
share.
• Then you will have to pay 0.1% on this transaction
as STT and brokerage @ 0.5%.
• Now suppose that you sell this share @ Rs. 1800
per share after 2 months.
• Then you will have to pay 0.1% on this transaction
as STT and brokerage @ 0.5%.
• Since the period under which capital gains to be
computed is less than a year, you will have to pay
short term capital gains tax @15% and 3%
education cess..

20. Examples
• Suppose you buy 100 shares of Financial
Technologies @ Rs. 400 per share.
• Then you will have to pay brokerage @ 0.1%.
• Now suppose that you sell this share @ Rs. 500 per
share intraday.
• Then you will have to pay 0.025% on this
transaction as STT and brokerage @ 0.1%.
• Since the income from intraday transactions is
treated as speculative income, you will have to add
this to your total income and pay the maximum tax
as per your tax slabs.

21. Examples
• Suppose you go long on a futures contract then you
don’t have to pay STT.
• If you go short on a futures contract then you have
to pay STT @ 0.01%.
• In case of options if you buy a call/put option and it
is exercised on or before the expiration date then
you have to have to pay STT @ 0.125% of the
settlement price i.e. ST*no. of options.
• If you sell call/put option then you have to pay STT
@ 0.017% on the premium.
• In case of MF you have to pay STT @0.001% on
the redemption i.e. NAV*no. of units

22. Corporate Tax
• It is paid on the income by a company operating in
India.
• For domestic companies having income less than
INR 10 million, it is 30%+Education Cess.
• For domestic companies having income more than
INR 10 million, it is 30%+Surcharge+Education
Cess.
• For foreign companies having income less than INR
10 million, it is 40%+Education Cess.
• For foreign companies having income more than
INR 10 million, it is 40%+Surcharge+Education
Cess.

23. In case of Capital loss
• In case a loss arises on the sale of an asset
 Then the capital loss can be set-off against other
capital Gains in that year.
• If the loss cannot be set-off against capital gain
in that year
 then it can be carried forward for the next 8 years and
set-off in the future years if the return was filled before
the due date.

24. Setting off conditions

25. Wealth tax
• It is basically the difference between the total worth
of the taxable assets and the aggregate debts that
have been incurred on those assets.
• This calculation does not take into account the
exempted assets and is always done on the basis of
a valuation date.

26. Wealth Tax Assets
• The following are regarded as assets that can be subjected
to wealth taxes as per Section 2(a) of Wealth Tax Act:
• Commercial buildings and the nearby land
• Jewellery, furniture, bullion, utensils, and other articles that
are either totally or partly made of gold, platinum, silver or
any other metal or an alloy of these metals. Ones owned as
stock-in-trade will be exempted from this tax
• Residential buildings and the nearby land
• Guest houses and the nearby land
• Urban land – (a) an area that is located within a local
authority’s jurisdiction and has at least 10,000 people as per
the last census completed before the valuation date. (b) an
area within 8 kms of a local authority like the Central
Government
• A farm house located within 25 kms of the local limits of a
Cantonment Board and municipality

27. Computation of Wealth Tax
• Wealth tax is normally levied on the basis of the
net wealth of the assessee, which could be an
individual, a company or a Hindu Undivided Family.
• At present the rate is 1 percent of the amount that
is in excess of INR 15 lakhs. The calculation is
done on the basis of a valuation date, which is
normally March 31 of the immediately previous
assessment year.

28. Example
• Suppose Mr. Chintamani has the following assets :
• Gold Jewellery : INR 6,500,000
• Residential building : INR 20,000,000
• Commercial building: INR 35,000,000
• Farm house: INR 40,000,000
• Total Wealth Asset: INR 101,500,000
• Taxable amount: INR 100,000,000
• Wealth Tax = 1% of INR 100,000,000
= INR 1,000,000

29. US tax slabs

30. Income tax slabs in China

31. Long Term capital gain
Capital asset India USA China
Equity 0% 0%, 15%, 20% 20%
Debt 20% with
indexation
0%, 15%, 20% 20%
Collectables 20% with
indexation
28% 20%
Dividend 0% 30% 10%
Real estate 20% 5% or 15%
depending upon
the income level
20%

32. Short Term Capital gains
Capital asset India USA China
Equity 15% Ordinary tax rates 20%
Debt Added to income Ordinary tax rates 20%
Collectables Added to income Ordinary tax rates 20%