How your Investment in Savings Products Change your Income Tax Returns Figures

Different saving instruments have different implications on your tax. It also depends on the type and product you are investing in.

To start the ball game, one needs to first understand how different tax instruments have different effects on their income tax figures. Let us take a look at the most common personal instruments that we often invest in and their effects on our tax figures.

Taxation on FDs

1. There are primarily two things one has to be aware of when they are dealing with fixed deposits and taxation.
2. There are two types of taxation that affects the ultimate amount that you are finally left with when you are investing in fixed deposits.
3. There is something called the TDS, which is Tax Deducted at Source. This allows or rather requires the bank to subtract a part of the income that an individual is making through their investment in fixed deposit.
4. The TDS charged on fixed deposits is calculated at 10% as of February, 2016. This means, say if you are making Rs. 10 Lakhs through your fixed deposits in a year, After your TDS is deducted, you will be left with: Rs. 10 lakhs – (10% of Rs. 10 lakhs) = Rs. 9 lakhs.
5. Sounds disheartening already? Wait there is more. You are also accounted for accountable for self-assessment tax which has to be paid from the Rs. 9 lakhs that you just made. So, we are making another assumption that you fall under the 30% tax bracket.
6. This means that your yearly income falls under the bracket where your income is taxed at 30%. This means, you have to deduct that 30% from Rs. 9 lakhs which will calculate something like this: Rs. 9 lakhs – (30% of Rs. 9 lakhs) = Rs. 6.3 lakhs.
7. So, ultimately you made a little more than 3/5th amount of what you were actually were promised through a fixed deposit.
8. But there is a way to reduce the taxation amount. Simply, make sure you are earning lesser in a year with a longer tenure.
9. There are special tax saving fixed deposit schemes that are available to Indian investors which has a longer tenure but helps save tax. 

Taxation on Debt Funds and Stock market Investments

1. Debt funds are often compared to equities although they are different completely when it comes to taxation.
2. The short-term capital gains that is the gain you ultimately make through debt funds in a short span of time is absolutely stock-oriented, which is similar to the taxes paid on the money make when you sell stocks.
3. Also, there is dividend distribution tax to be paid for your shares. The long term debt term investments however are taxed based on the income bracket an individual falls under.
4. So, the key is to pay invest in short-term debt funds because the dividend distribution tax is charged to the investor at source at around 13.51 percent for the majority of debt funds. But this is bared by the fund house.
5. Hence, the amount, i.e. if you invest in a debt fund for a tenure that is less than 12 months, you are not taxed at all.

Taxation on Mutual Funds

1. Just like debt funds, if you are making a mutual fund investment that will last only for 12 months or less you can consider to be taxed quite similarly. In the case of short-term mutual funds that taxation is calculated at 15%.
2. This is irrespective the tax bracket the individual falls in. As of long-term mutual fund investments are practically tax-free. So, in the case of mutual funds, for tax-saving benefits invest in long-term products and schemes.

Taxation on Precious Metals and Gold ETFs 

Note, that Gold ETFs, which are assumed to be a long-term investment if the tenure of the scheme is more than a year. The tax treatments again for gold, silver and real estate function similar to how debt mutual funds work and hence may be treated similarly. 

Real Estate Taxation

1. Instead of explaining how the tax you pay on capital gains, i.e. the profit you make from buying and selling real estate, is very disheartening to an investment’s financial sentiments, and treated in the same way as Gold ETFs, simply know that reinvesting the money that you make from real estate is the best way to save on tax.
2. A new re-investment not only opens doors to a new money-making opportunity but also saves tax.

Interest Accrued on Bank Savings Account

When we learn that a savings bank account has poor interest rates, the majority of us take a step back. Thankfully, interest received on savings bank accounts is now tax-free up to Rs 10,000 per financial year.

Taxation on National Pension Scheme

10% of your base pay, if you are a salaried employee, may be contributed to your National Pension Scheme account by your employer. As per the statement of officials, the employer's contribution to the NPS account will not be included in taxable income calculations or count towards the Rs.1 lakh Section 80C refund cap.

Medical/Health Insurance

Buying medical insurance makes it much easier to pay for one's own, one's spouse's, one's dependent children, and one's parents' medical costs in an emergency. Seniors who are self-insured or who are dependent parents can deduct up to Rs.20,000 from their taxes; if they are covered for themselves, their spouse, and their dependent children, they can deduct up to Rs.15,000.

Public Provident Fund

1. PPF is an extremely cost-effective investment choice that provides both tax exemption and savings advantages.
2. A PPF account must be opened and kept up to date with an annual minimum deposit of Rs 500. A PPF account has a minimum term of 15 years, although it can be extended in increments of 5 years for an unlimited number of blocks.
3. Any interest earned through this is completely and permanently tax-exempt. Furthermore, there is a tax benefit available for donations made to the spouse's and kids' PPF accounts.

But understand that you as an investor will have a different requirement as against the one sitting beside you right now. This include your current financial condition, the amount of investment you two are willing to make and the ultimate purpose of the investment. Though taxation is important, it should not be your benchmark for choosing a personal investment product.