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16 important investments for increasing your wealth and its tax treatment

In this article, we will discuss about tax treatment of various different Income & Investments made are: (1). Public Provident Fund (PPF) –   a) Fully Tax exempt (Both Principal & Interest amount are fully tax exempt at the time of maturity). b) Section – 80C deduction is available up to Rs 1.5 Lakhs. c) Minimum investment amount = Rs 500 & Maximum investment amount = Rs 1,50,000 d) Lock-in-period = 15 years, Interest rate is 7.10% p.a. e) For better interest earning, Investor can invest in PPF on or before the 5th date of the month to cover larger portion of interest earning whether investing through lumpsum or SIP mode. (2). National Pension Scheme (NPS) –   a) 60% amount are tax exempt & balance 40% are taxable. Annuities have to be purchased of balance 40% amount. b) Amount received from balance 40% annuities as pension will be taxable as per the income tax slab rates of the individual. c) Section – 80C deduction is available up to Rs 1.5 Lakhs for NPS contribution. Section – 80CCD(1B) additional deduction of Rs 50,000 is also available. d) Contribution to NPS is made in TIER-1 account only, Lock-in-period = Till the individual attain 60 years of age. e) In case the total corpus of NPS Contribution is LESS THAN Rs 2 Lakhs, then FULL amount can be withdrawn. f) In case of Medical Emergency, Marriage, Higher Education – NPS can be withdrawn up to certain limit after satisfying certain condition even before 60 years of age of Individual. (3). ELSS Tax Saver MF –   a) Due to 3 years lock-in-period in ELSS Tax Saver MF, it will always be treated as Long Term Capital Gain (LTCG) taxable @ 10% + 4% Cess (Surcharge, if applicable) over & above Rs 1 lakh gain u/s 112A. b) No Indexation benefit will be available. No Rebate u/s 87A will be allowed c) Section – 80C deduction is available up to Rs 1.5 Lakhs. d) In case of SIP Investment, on every SIP investment it will be treated as new purchase & 3 years lock-in will be counted from that date. (4). Employee Provident Fund (EPF)–   a) Minimum contribution by employer 12% of Basic Salary + D/A. b) Contribution can be made by both Employer & Employee. Interest rate is 8.15% p.a. c) Contribution amount is allowed as deduction u/s 80C up to Rs 1.5 Lakhs. d) Maturity amount is tax free only on completion of 5 years of period of employment. EPF can be withdrawn while permanently quitting the job or transferring from one job to another. e) INTEREST received on EPF will be TAXABLE if INTEREST amount received exceeds Rs 2.5 Lakhs during a financial year under the head Income from Other Sources as per slab rates of the individual. i.e., Principal amount of EPF contribution will be EXEMPT but INTEREST received on EPF contribution will be TAXABLE if INTEREST amount received exceeds Rs 2.5 Lakhs during a financial year. (5). Mutual Fund (Equity Oriented), Equity Shares & Units of Business Trust – a) If MF (Equity Oriented), Equity Shares & Units of Business Trust are held for < 12  months from date of Investment, it will be treated as Short Term Capital Gain (STCG) taxable @ 15% + 4% Cess (Surcharge, if applicable) u/s 111A. b) If MF (Equity Oriented), Equity Shares & Units of Business Trust are held for > 12  months from date of Investment, it will be treated as Long Term Capital Gain (LTCG) taxable @ 10% + 4% Cess (Surcharge, if applicable) over & above Rs 1 lakh gain u/s 112A. No Indexation benefit will be available. No Rebate u/s 87A will be allowed. c) Basic Exemption limit will be allowed to RESIDENT individuals on STCG u/s 111A & LTCG u/s 112A. Maximum SURCHARGE payable on tax amount u/s STCG u/s 111A & LTCG u/s 112A will be restricted to 15%. (6). Mutual Fund (Debt Oriented), Any other Capital Assets – a) If MF are held for < 36 months from date of Investment, it will be treated as Short Term Capital Gain (STCG) taxable as per income tax slab rate of Individual + 4% Cess (Surcharge, if applicable). b) If MF are held for > 36 months from date of Investment, it will be treated as Long Term Capital Gain (LTCG) taxable @ 20% (with INDEXATION benefit) + 4% Cess (Surcharge, if applicable). However, as per AMENDMENT in Budget 2023 (i.e., from 1st April, 2023), LTCG on sale of debt oriented MF will be taxable as per income tax slab rate of Individual + 4% Cess (Surcharge, if applicable). c) Any other capital assets INCLUDES Bullion, Jewellery, Archaeological Collection, silver, Utensils, Precious Stones, Drawings, Paintings or any other capital assets. (7). Sale of Immovable Property (Land & Building), Unlisted Shares – a). If property is held for < 24 months from date of Investment, it will be treated as Short Term Capital Gain (STCG) taxable as per income tax slab rate of Individual + 4% Cess (Surcharge, if applicable). b). If property is held for > 24 months from date of Investment, it will be treated as Long Term Capital Gain (LTCG) taxable @ 20% (with INDEXATION benefit) + 4% Cess (Surcharge, if applicable) u/s 112. Cost of Improvement will also be available. c). Basic Exemption limit will be allowed to RESIDENT individuals, Maximum SURCHARGE payable on tax amount will be restricted to 15% on LTCG u/s 112 (Sale of Immovable Property) NOT against Unlisted Shares. d). Exemption u/s 54 & 54F can be claimed by assessee selling immovable property if assessee invest the amount of sale consideration 1 year before or 2 year after date of sale in purchasing any other Residential House Property or Construct any house property within 3 year after date of sale. However, the NEW residential house property purchased CANNOT be sold within 3 years from date of purchase of property, otherwise the LTCG exempted earlier will be taxable & any gain

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