Taxation on Bank deposits and Debt Mutual Funds

Invest In Tax Saving Mutual Funds Online

Download Tax Saving Mutual Fund Application Forms

Buy Gold Mutual Funds

Call 0 94 8300 8300 (India)

 

Understanding taxation among debt funds and Bank deposits is very important as it becomes one of the parameter of selection among these.

	Tax rates FY 2011-2012
Description		Debt Funds		Bank deposits
Profit booked within One year of Investment		As per Income Tax slabs		As per Income Tax slabs
Profit booked after one year of Investment		10% without Indexation or 20% with Indexation		As per Income Tax slabs
		Whichever is lower
Dividend Received		No Tax		NA
Dividend distribution Tax
Liquid Schemes		25%+5%(surcharge)+3% (cess)=27.038%		NA
Debt schemes other than Liquid		12.5%+5%(Surcharge)+3% (cess) = 13.519%		NA

* in finance bill 2013-14 , Finance minister has increased the dividend distribution tax in Debt schemes other than liquid and thus are now at par with Liquid schemes which is 27.038%

Let's take an example to understand it better.

Mohan has 2 options in front of him.Either to invest Rs 1000000/- in 370 days FMP with indicative yield of 9.5% p.a or to select Bank fixed deposits with rate of 9.5% ( compounded quarterly).

	Particulars		FMP (Retail Growth Option) 370 days		FMP (Retail Growth Option) 370 days		Bank Fixed deposit
		Without Indexation		With Indexation
Amount invested (Rs.)		1000000.00		1000000.00		1000000.00
Assumed rate of return / interest (%)^		9.50%		9.50%		9.50%
Return / interest for first 12 months (Rs.)		95000.00		95000.00		98438.00
Return / interest for remaining 5 days (Rs.)		1301.37		1301.37		1348.47
Total return / interest for the period (Rs.)		96301.37		96301.37		99786.47
Maturity proceeds (Rs.)		1096301.37		1096301.37		1099786.47
Indexation Benefit		Not availed		Yes		No
Indexed Cost of Investments (assuming 7% rate of Inflation Index)		Not availed		1070000.00		NA
Applicable tax rate assuming highest tax bracket + 10% Surcharge + 3% Education Cess		11.33%		22.66%		33.99%
Tax liability (Rs.)		10910.95		5959.89		33917.42
Receipts net of tax (Rs.)		1085390.42		1090341.48		1065869.05
Post-tax return for investment period of 370 days (p.a.)		8.42%		8.91%		6.50%

The above calculation clearly shows that even if a person comes in lowest tax slab, then also FMP can provide better tax efficient returns after indexation.(if at all inflation is on his side). Moreover when we know that when interest rates are falling, open ended debt funds have potential to deliver better returns

Even when the requirement is to park money less than one year, then also the short term funds and ultra-short term funds prove to be very tax efficient due to less dividend distribution tax.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief '96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

1. Largecap Funds Invest Online
1. DSP BlackRock Top 100 Fund
2. ICICI Prudential Focused Blue Chip Fund
3. Birla Sun Life Front Line Equity Fund
2. Large and Midcap Funds Invest Online

1. ICICI Prudential Dynamic Plan
2. HDFC Top 200 Fund
3. UTI Dividend Yield Fund
2. Mid and SmallCap Funds Invest Online

1. Reliance Equity Opportunities Fund
2. DSP BlackRock Small & Midcap Fund
3. Sundaram Select Midcap
4. IDFC Premier Equity Fund
3. Small and MicroCap Funds Invest Online

1. DSP BlackRock MicroCap Fund
4. Sector Funds Invest Online

1. Reliance Banking Fund
2. Reliance Banking Fund
5. Tax Saver MutualFunds Invest Online
1. ICICI Prudential Tax Plan
2. HDFC Taxsaver
3. DSP BlackRock Tax Saver Fund
4. Reliance Tax Saver (ELSS) Fund
6. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund