How debt related investments are taxed

There are number of ways to invest money and earn good returns like debt investments, equity funds, real estate, commodity investments, ETFs, rental options and so on. But as we get returns on our investments and gain some amount of money, these investments become eligible for taxation. Also diversification of an asset portfolio is equally important to get the maxium output. Let's find out how debt related investments are taxed in India.

Certified Financial Planner, Poonam Rungta told Zee Business Online, ''Debt related instruments are subject to low returns with lower risk invested. As compared to equity investments they are highly taxable. It attracts a LTCG tax of 20% after 3 years of investment. While to my point if an individual can bear little more risk, he/she should be invested in equity mutual funds as against debt funds.'' 

They are various kinds of debt-related instruments available in the market like, Fixed deposits, National Savings Certificate, Post office schemes, Senior Citizen's Savings Schemes, Debt Mutual Funds etc. While there is a set taxation pattern applicable on each debt instrument, let's understand how it works.

Taxes on debt related investments:

1. Income Tax (as per slab):  Income Tax is applicable on gains from debt instruments as per the slab rate. While Fixed Deposits attract Rs 50,000 exemption only in case of senior citizens. On National Savings Certificate there is an exemption of Rs 1.5 lakh under 80c, if the interest earned is re-invested. However, on Senior Citizen's Savings Schemes, there is no TDS on upto Rs 10,000.

2. Short Term Capital Gains Tax:  STCG tax on debt instruments is levied as per the income tax slab rate of an individual. 

2. Long Term Capital Gains Tax: LTCG tax of 20% with indexation benefit is levied on debt instruments of an individual.

3. Dividend Distribution Tax: DDT is also a kind of tax that is levied on the dividends (dividend income) from mutual funds. While dividends from debt funds are tax-free in the hand of the investors. However, when a debt fund declares dividend, DDT of 25% tax + 12% surcharge + 4% cess is deducted and net amount is paid out.