How your investments are taxed

Long-term gains are exempt up to ₹1.25 lakh a year across all your equity holdings; only the excess is taxed. No indexation. Gains on shares held before 31 January 2018 are grandfathered to that date's price. Buyback proceeds are now taxed as capital gains in the shareholder's hands rather than as dividend.

Same ₹1.25 lakh annual exemption, shared with direct shares. Arbitrage funds qualify as equity-oriented despite behaving like cash, which is what makes them a short-horizon parking option.

The lock-in means every redemption is long term by default. The ₹1.5 lakh deduction under section 80C is available only in the old tax regime. Under the new regime, which is now the default, ELSS is taxed exactly like any other equity fund and offers no deduction.

Classification is checked against the annual average of monthly equity averages, not a single day's portfolio. If a scheme drifts below 65% it moves to the non-equity track.

Capital gains follow the equity track. The distributions are different — the interest component is taxed at your slab rate, the dividend component depends on the SPV's tax regime, and the return-of-capital component reduces your cost of acquisition instead of being taxed now.

The 24-month line and no ₹1.25 lakh exemption — the concessions on the equity track belong to listed shares. Once a company lists and you sell on the exchange, the listed rules take over. Valuation is a live issue on unlisted transfers: consideration below fair value can be taxed in the buyer's hands as well.

Stage one: the difference between fair market value and your exercise price is a salary perquisite taxed at your slab rate, with the employer deducting TDS — even though you have received no cash. Stage two: when you sell, the gain over that fair market value is a capital gain, listed rules if listed, unlisted rules if not. Eligible startups can defer the stage-one TDS. Foreign RSUs also need Schedule FA disclosure.

Taxed as income from other sources at your slab rate — there is no concessional rate. TDS of 10% applies once dividends from a company or AMC cross ₹10,000 in a financial year.

SIF strategies are taxed on the same tests as any other fund — the label does not create a separate regime. An equity-oriented strategy follows the 12-month equity track; a strategy holding more than 65% in debt and money market instruments falls into the specified mutual fund bucket and is taxed at slab rate throughout. Check the stated classification in the scheme document rather than assuming from the strategy name.

These are specified mutual funds. Gains are deemed short term however long you hold them, taxed at your slab rate with no indexation. For an investor in the 30% bracket that is roughly 31.2% with cess — the single biggest tax gap in the table. The offset is that tax is deferred until you redeem, unlike an FD where interest is taxed annually as it accrues.

These units keep the long-term category, but indexation was withdrawn for transfers on or after 23 July 2024, so the long-term rate is a flat 12.5% on the full gain. Check the purchase date before you redeem anything from an older folio.

Debt-dominated hybrids fall inside the specified mutual fund definition and are taxed like debt funds. Hybrids sitting between 35% and 65% equity are outside both definitions — they get a 24-month line and 12.5% long term.

Interest is taxed on accrual each year, not on maturity, so the tax drag starts immediately and compounds against you. Banks deduct 10% TDS once interest crosses the threshold; senior citizens get a higher threshold and a deduction under section 80TTB in the old regime. The 5-year tax-saving FD gives an 80C deduction in the old regime only — its interest remains fully taxable.

Same treatment as a bank FD — accrual basis, slab rate, TDS at 10% above the threshold. No 80C benefit even on longer tenures, and no deposit insurance, so the extra yield over a bank FD is compensation for credit risk rather than a tax advantage.

Capital gains on sale follow the schedule above. Coupon interest is separate and always taxed at your slab rate in the year it accrues. Selling on the exchange before maturity is the only way to access the 12.5% rate — holding to redemption gives you interest, not capital gain.

Gains on transfer, redemption or maturity are always short term at your slab rate, with no concessional rate at any holding period. This closed the arbitrage that made MLDs popular before 2023.

Interest is paid out half-yearly and taxed at your slab rate with TDS deducted. There is no cumulative option and the bonds are not tradable, so no capital gains arise — the entire return comes through as taxable interest. Sovereign credit, ordinary tax treatment.

The interest is genuinely exempt under section 10(15) — that is what makes these attractive to investors in the top bracket. But if you sell on the exchange before maturity, the capital gain is taxable on the schedule above. No fresh issues have come to market for years, so these trade at a premium in the secondary market.

Investing long-term gains from land or building in these bonds within six months exempts that gain, capped at ₹50 lakh per financial year. The exemption is the point; the bonds themselves pay a modest coupon that is fully taxable at your slab rate, and they are locked in for five years. Exiting early reverses the exemption.

Returns are interest, taxed at your slab rate — there is no capital gains treatment however the platform presents the yield. Defaults are generally not deductible against that interest, so the advertised return and the post-tax, post-default return can diverge sharply.

Because they are listed, the 12-month line applies. No ₹1.25 lakh exemption — that belongs only to the equity track.

Capital gains on redemption at maturity were exempt for original subscribers. That exemption does not extend to units bought in the secondary market from April 2026. The 2.5% annual interest is taxable at slab rate throughout.

No indexation. Making charges form part of your cost of acquisition — keep the invoice.

Unlisted units carry the 24-month line. A gold fund of funds that happens to hold over 65% in debt instruments falls back into the specified mutual fund bucket and is taxed at slab rate throughout.

Foreign listed shares do not get the 12-month line or the ₹1.25 lakh exemption. Dividends are taxed at your slab rate, generally after US withholding of 25% which you can claim as foreign tax credit by filing Form 67. Schedule FA disclosure is mandatory — the penalties for omission are severe and apply regardless of the amount involved.

Unlisted units carry the 24-month line. An international fund that happens to hold over 65% in debt instruments falls back into the specified mutual fund bucket and is taxed at slab rate throughout.

The sum assured paid on death is exempt without conditions — regardless of premium size, policy vintage, or product type. None of the premium thresholds below touch it. This is the part of insurance the tax code has never disturbed, and it is worth saying plainly to clients who have heard that insurance is now taxed.

A pure term plan pays only on death, so there is no maturity event to tax. Premiums qualify for 80C in the old regime only. Return-of-premium variants do have a maturity payout, and that payout is tested against the same conditions as any other traditional policy.

Maturity proceeds stay exempt only if the aggregate annual premium across all such policies stays within ₹5 lakh and each policy's premium is within 10% of its sum assured. Breach either test and the maturity amount less total premiums paid is taxed as income from other sources at your slab rate, with 2% TDS on the income component above ₹1 lakh. The ₹5 lakh cap aggregates across policies — splitting into several plans does not help.

The ₹5 lakh cap does not apply. These remain exempt provided the annual premium never exceeded 10% of the sum assured for policies issued after April 2012, or 20% for policies issued between 2003 and 2012. Fail that single test in any one year and the entire maturity becomes taxable.

Maturity proceeds are exempt, provided the premium also stays within 10% of the sum assured. Fund switches inside the policy are not taxable events — the one structural advantage a ULIP holds over a mutual fund portfolio, since rebalancing carries no tax cost. The ₹2.5 lakh test aggregates across every ULIP you hold.

The policy is treated as a capital asset and taxed like an equity-oriented fund, including the ₹1.25 lakh annual exemption shared with your other equity holdings. Budget 2025 put this beyond doubt with effect from 1 April 2026. Where the underlying funds are not equity-oriented, the non-equity rates apply instead. Policies issued before 1 February 2021 are outside this entirely and stay exempt.

The monthly or annual annuity is taxed at your slab rate in the year you receive it — the full payout, not just the growth component, since there is no separation of principal and return. This is the tax cost that turns an apparently attractive annuity rate into a modest post-tax yield for someone still in the 30% bracket after retirement.

A claim settlement is reimbursement of expenditure, not income, so nothing is taxable. Premiums qualify for deduction under section 80D in the old regime only — up to ₹25,000 for yourself and family, and a further ₹50,000 for senior citizen parents.

Genuinely exempt at all three stages. Interest is tax-free as it accrues and the maturity corpus is tax-free on withdrawal, with none of the thresholds that now apply to EPF. The 80C deduction on contributions is available in the old regime only, but the exemption on interest and maturity holds under both regimes.

Five years of continuous service — including service transferred between employers — makes the entire corpus exempt. Withdraw before that and the accumulated balance becomes taxable, with the earlier 80C deductions clawed back. Transferring the balance to a new employer rather than withdrawing between jobs is what protects the clock.

Where your own contributions to EPF and VPF together exceed ₹2.5 lakh in a year (₹5 lakh where the employer does not contribute), the interest on the excess is taxable each year as it accrues. EPFO maintains a separate taxable sub-account for this and deducts TDS. VPF counts toward the same ₹2.5 lakh — which is precisely the calculation to run before recommending VPF top-ups to a high earner.

Where the employer's combined contribution to EPF, NPS and an approved superannuation fund exceeds ₹7.5 lakh in a year, the excess and the returns on it are taxed as a salary perquisite. Relevant almost entirely to senior executives, but it is the kind of thing that surfaces in a Form 16 without warning.

The lump sum you withdraw at retirement is exempt, and partial withdrawals along the way are exempt too. The balance that must go into an annuity is not taxed at the point of purchase, but every annuity payment thereafter is taxed at your slab rate. NPS is therefore exempt-exempt-partially-taxed, not EEE, and the annuity leg is where the tax sits. Exit rules on how much must be annuitised have been relaxed in recent years — check the current PFRDA position for the client's corpus size.

Your own contributions get ₹1.5 lakh under 80CCD(1) within the overall 80C ceiling, plus an exclusive ₹50,000 under 80CCD(1B) — but only in the old regime. The employer's contribution under 80CCD(2), up to 14% of basic and DA, is deductible in the new regime as well. For a salaried client on the new regime, that employer route is effectively the only retirement deduction left standing.

Tier II offers no deduction for most subscribers and the Act does not expressly prescribe how gains on withdrawal are taxed. The commonly adopted position is slab rate as ordinary income, but this is genuinely unresolved and practice varies. Do not position Tier II as a tax-efficient alternative to a mutual fund without a CA's view on the client's facts.

Exempt at all three stages like PPF, at a rate that has historically run above it. The ₹1.5 lakh annual contribution shares the 80C ceiling with everything else and is deductible in the old regime only.

Interest is fully taxable at slab rate with TDS above the threshold — the deposit qualifies for 80C in the old regime, but the income does not escape. Section 80TTB gives senior citizens a ₹50,000 deduction against interest income in the old regime, which absorbs part of it.

All three pay taxable interest at slab rate. NSC has one quirk worth knowing: the interest accrued each year other than the final year is deemed reinvested and can itself be claimed under 80C in the old regime, which softens the annual tax on accrual.

Long-term gains are taxed at 12.5% without indexation. For property acquired before 23 July 2024, a resident individual or HUF can instead choose 20% with indexation and pay whichever is lower — the only surviving indexation option in the tax code. Property acquired on or after that date gets 12.5% flat with no alternative. Stamp duty, registration and improvement costs add to your cost base.

Same schedule and the same pre-July-2024 indexation choice. Rural agricultural land meeting the distance and population tests is not a capital asset at all, so its sale falls outside capital gains entirely — the tests are specific and worth confirming rather than assuming.

Taxed at slab rate after a flat 30% standard deduction for repairs and maintenance, whether or not you spent it, plus municipal taxes actually paid. Home loan interest is deductible against rental income; the set-off of any resulting loss against other heads is capped at ₹2 lakh a year, with the balance carried forward eight years.

54 exempts the gain on a residential house reinvested in another residential house. 54F exempts the gain on any other long-term asset where the whole sale consideration goes into a residential house. 54EC exempts up to ₹50 lakh of gain on land or building invested in specified bonds within six months. Timelines are strict and unused amounts must be parked in a Capital Gains Account Scheme before the return due date — miss that step and the exemption fails even if you buy later.

Taxed at your slab rate as speculative business income. Losses can be set off only against other speculative profits and carried forward four years — the most restrictive loss treatment outside crypto. Reported in ITR-3, kept as a separate business from any F&O activity.

Slab rate, but with the better loss treatment: set off against any head except salary, carried forward eight years, and genuine trading expenses — brokerage, exchange charges, data feeds, advisory — are deductible. Audit thresholds and the presumptive scheme under 44AD both come into play at higher turnover. STT on derivatives rose from 1 April 2026.

The harshest regime in the table. A flat 30% plus cess on every transfer, no holding period distinction, and only the cost of acquisition is deductible — no brokerage, no gas fees, no advisory. Losses cannot be set off against anything, not even gains on a different token, and cannot be carried forward. A 1% TDS applies on transfers above the threshold, reporting goes in Schedule VDA, and the section 87A rebate does not apply. Foreign-platform holdings also need Schedule FA disclosure.

There is no fund-level wrapper. Every sale the manager makes is a taxable event for you in the year it happens — you cannot defer tax by staying invested the way a mutual fund investor can. A high-churn strategy will generate a materially larger short-term bill than its headline return suggests.

Tax is computed on your gross gains. Management and performance fees are generally not allowed as a deduction against capital gains, so the fee comes out of post-tax money. Brokerage and transaction costs on each trade are treated differently from the annual fee — ask your provider how their capital gains statement handles each.

Each holding is taxed under its own asset class rules, so a single PMS statement can span three different tax treatments. Dividends and interest received inside the PMS are your slab income in the year of receipt.

If the volume and frequency of transactions point to trading rather than investing, the department can recharacterise gains as business income taxed at slab rates — losing the concessional capital gains rates entirely. Consistency of treatment across years is what protects the position.

Statutory pass-through: the fund pays no tax on non-business income and it is taxed directly in your hands with its character preserved. Capital gains stay capital gains at 12.5% or 20%; interest from a private credit fund reaches you as interest at your slab rate. Never assume a Category II return is all capital gains — read the fund's Form 64C.

Business income is the one exception to pass-through. It is taxed at the fund level and reaches you exempt. Business losses also stay trapped at the fund and cannot be passed to you; other losses can pass through if you have held your units at least 12 months.

No pass-through status. A Category III AIF structured as a trust is generally taxed at the maximum marginal rate — about 42.744% including surcharge and cess — on income at the fund level, and you receive distributions net of that. It is administratively simple, but a smaller investor bears the top rate regardless of their own bracket. The exact outcome depends on the trust's determinacy and the fund's income mix, so read the tax note.

The fund withholds 10% on non-business income distributed to resident investors. This is not your final liability — top up through advance tax where your actual rate is higher, and claim credit in your return.