Tax Saving Investments - Best Tax Saving Schemes

Tax Saving Investments - Best Tax Saving Schemes

Income tax is indeed one of the most complicated subjects. Here, we are to introduce you to the different aspects of taxation. This tax will be applicable only to your investment-related income. We will also help you out in minimizing the amount of payable tax by utilizing different means and ways. It is advisable to have an elaborate consultation with your tax advisor. He will guide you regarding the details related to tax laws. This will be helpful for you in filing returns.

Payment of taxes on Investment-related incomes:

We will discuss various types of investments here. Mutual funds and stocks come under capital assets. If you make a gain from purchasing and selling these assets, it will be categorized as capital gains. You need to know that capital losses or gains take place only when an investment is sold.

Dividends that are paid by shares or funds are known as dividend income. The income generated from the post office, bank, or other deposits, in the form of interests, is known as interest income.

Let us have a look at the taxation situation for all the above-mentioned categories.

Tax applicable to capital gains of mutual funds:

If non-equity funds are held for more than three years than they are considered as long term capital assets. Tax applicable upon long term capital assets should be paid at the rate of 20%. There will be indexation benefits upon the realized gains. The gains that you make on the non-equity funds (held for more than three years) will be added to your income. Tax will be applicable according to the slab rates.

Equity funds that are held for more than one year are considered as long term capital assets. Taxes are to be paid on these long term gains at the rate of 10% that too without indexation.

Taxes on the short term capital gains that you earn from equity funds are payable at the rate of 15%.

Capital gains that an investor earns from Mutual funds and shares:

Investment type Long term holdings Short term holdings
Indian equity funds, Equity oriented hybrid funds and shares Gains that exceeds an amount of Rs 1 lakh are taxed at the rate of 10%. Held up to a period of 1 year, tax payable at the rate of 10%.
Other funds ( gold and international funds, fixed income) Once adjustment for inflation is made, tax is payable at the rate of 20%. Held up to a period of 3 years; Gets added to your income.


The dividend income that you earn from Mutual funds and Equity:

Investment types Dividend distribution tax
Other funds 29.12%
Equity funds, shares, Equity oriented hybrid funds 11.65%








For instance, consider a situation where you have invested an amount of Rs 1 lakh in the year 2002-2003, in a non-equity fund, and then if you have sold it in the year 2018-19 for an amount worth Rs 5 lakh. There will be an adjustment in your capital gains tax regarding inflation. The calculation will be like this:

 280 divided by 105 = 2.67.

According to this method, your investment cost will be considered 2.67 times higher than the original value. In this case, the cost will be Rs 2.67 lakhs. So, your profit is Rs 2.33 lakhs, and the tax that you need to pay is Rs 46, 600.

Incomes in the form of interest:

Incomes that you earn in the form of interest are taxed as per your tax bracket.

Savings that you can make on taxes through section 80C:

Section 80C provides the investors with attractive investment opportunities up to the amount worth Rs 1.5 lakhs. The best part is that everyone can reap the advantage of irrespective of his or her level o0f income. Suppose you are in the highest tax, i.e., thirty percent, then the investment of Rs 1.5 lakhs will help you in saving Rs 46, 800. Following are the several financial products that get qualified for Section 80C benefits:

  1. Repayment of the principal of the home loan.
  2. Payment of Life insurance premium.
  3. The amount that you contribute to Employee’s Provident Fund or EPF.
  4. Contributions that you make towards Public Provident Fund or PPF.
  5. Tuition fees are required for two of your children. But the amount that you pay for the purpose of donation or development charges cannot be included in Section 80C benefits. Also, the fact that you need to keep in mind is that the aggregate deduction cannot exceed the amount of Rs 1.5 lakhs.
  6. Investment in the form of pension plans.
  7. National Savings Certificate, five-year government-backed security at post offices.
  8. Investments in the form of tax planning mutual funds or ELSS.
  9. Savings in the form of notified term deposits in scheduled banks. The minimum tenure should be five years.
  10. Post office savings with a five year lock-in period.