India: How investments are taxed

Understanding tax helps Indian investors keep more of their returns. This is a general overview — rules and rates change, so confirm current specifics or consult a professional.

Capital gains

Tax on the profit when you sell, split by how long you held and the asset type:

• Equity (shares, equity funds): gains on holdings under a year are short-term (STCG) and taxed at a higher flat rate; over a year they're long-term (LTCG), taxed at a lower rate with an annual exemption threshold.
• Debt funds, gold, property: different holding periods and rates apply.

Income: dividends and interest

• Dividends are added to your income and taxed at your slab rate.
• Interest (FDs, savings, bonds) is taxable as income, and TDS may be deducted at source above thresholds. See FDs and RDs.

Deductions that cut tax

• Section 80C (up to ₹1.5 lakh): PPF, EPF, ELSS, tax-saving FDs, life insurance, and more.
• Section 80CCD(1B): an extra deduction for NPS.
• Section 80D: health-insurance premiums.

Old vs new regime

India offers two tax regimes: the old (higher rates but many deductions like 80C/80D) and the new (lower rates but few deductions). The better choice depends on how many deductions you use.

Key takeaway

Use tax-advantaged options (80C, 80D, NPS), hold equities long-term for lower LTCG, and pick the regime that fits your deductions. Small tax savings compound over a lifetime.