Taxation may not necessarily be the reason why an investor invests in a particular security, but knowing the tax implications on your investments is necessary. Here’s a quick guide to understand how your bond investments are taxed –
Resident and Non-Resident Indians:
Are you a Resident?
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A person who has stayed in India 182 days or more or 60 days or more in a given financial year and 365 days or more in the 4 immediately preceding previous years.
Are you an NRI?
Any person who does not qualify as a Resident based on the criteria mentioned above, is a Non-Resident Indian.
For NRIs – What is the purpose of NRE and NRO accounts?
The purpose of an NRE account is to park foreign earnings (taxed abroad), this account is exempt from tax hence Indian income cannot be
transferred here. NRO on the other hand is taxed and hence income earned by NRIs in India has to be transferred to this account. The foreign
earnings parked in an NRE account can be invested however, the interest earned on the investment can only be credited to the NRO account.
Tax on Interest Income:
Interest income on all bonds (listed and unlisted) except tax free bonds would be taxed as per the applicable slab rates. For the purpose of calculating total income, interest income usually comes under the head ‘Other Income’. After arriving at the net income, slab rates are applied on the income to derive the total tax on income.
Residents are taxed differently based on age which divides residents into three categories – Individual (below 60 years), Senior citizen (60 to 80 years) and Super Senior Citizen (above 80 years).
For Non-Residents whether aged below 60 Years, above 60 – 80 Years and above 80 Years. All are taxed uniformly.
Slab Rates:
For Individuals below the age of 60, all NRIs and HUFs:
Total Income Old Tax Regime New Tax Regime
Up to 2.5 lakh – 5% ………………………………. 5%