new Delhi. It is important for any investor to understand the mathematics of income tax before investing. This helps investors to balance their portfolio with less risk. Before redemption of mutual fund (Mutual Fund Withdrawal), the income tax levied on it has some different rules. Because the tax liability is different for equity and debt in mutual funds.
Debt mutual funds are schemes that invest in fixed income instruments like government and corporate bonds or money market instruments like treasury bills. These schemes give slightly lesser returns to the investors, but they are considered safe.
This helps investors to balance their portfolio with less risk. These are also known as fixed income funds. Such schemes are generally considered to be less risky than equity-oriented schemes as they offer stable returns.
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How are debt funds taxed?
Returns matching with long-term investments in debt mutual funds are taxed at 20 per cent after indexation. But redeeming money on short term investments attracts short term capital gains tax, which is based on the tax slab of the investor.
When is tax deducted on FD
There is a special rule to deduct TDS on FD interest. If the interest earned on FD is more than Rs 40,000, then TDS will be deducted on it. In the case of Cenium Citizen, this amount is Rs 50,000. If the interest amount is more than this, then TDS will be deducted on the entire amount. If it does not come under the purview of tax, then you can save it.
Tax rules on NSC
Under Section 80C, NSC investments get tax exemption up to Rs 1.5 lakh per annum. It has a tenure of 5 years, so the interest earned on it is also reinvested every year, so it gets tax exemption under section 80C, but the interest earned on maturity is not tax exempt. If you compare it with fixed deposit schemes, then investing in it proves to be a very profitable deal.
Tags: income tax, Income Tax Planning
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