June 18, 2024

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How a lot money gains tax must I pay out if I have no other profits resource?

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Previous Up-to-date on May 21, 2024 at 10:24 amReaders typically talk to,  “How much funds gains tax ought to I pay back if I have no other income resource?”The response is quite simple. Up to the tax-free of charge limit (employing the then prevailing tax slabs), the cash gains are tax-absolutely free if there are no other resources of revenue (this is pretty unusual, if not impossible). We shall see illustrations beneath.A reader also requested if this rule applies to the new tax regime. Certainly, it is. According to tax qualified Manmohan Sethumadhavan, This operates by a proviso in sections 112 & 112A of the IT Act, which states,Delivered that in the situation of an particular person or HUF, being a resident, wherever the whole money as reduced by these extensive-time period money gains is under the greatest amount of money which is not chargeable to earnings-tax, then it shall be lowered by the amount which is not chargeable to revenue-tax.Now, let us look at some illustrations using the new tax routine.Warning: These illustrations might give buyers strategies about how to conserve tax in retirement. It is perilous to rely only on earnings from mutual resources until you are super prosperous! These examples are far from practical and only serve to illustrate the legislation.Example 1No other sources of taxable incomeAge < 80Capital gains from equity mutual funds = Rs. 4 lakhs.Tax to be paid = zero.Explanation: Up to Rs. 3 lakhs is tax-free. The first Rs. 1 Lakh capital gain from equity mutual funds is tax-free.The tax-free limit for all other capital gains = Rs. 3 lakhsExample 2Income after accounting for standard deduction: Rs. 1 LakhAge < 80Capital gains from equity mutual funds = Rs. 4 lakhs.Tax to be paid = Rs. 10,400Explanation: Up to Rs. 3 lakhs is tax-free. So, Rs. 2 lakhs of the capital gain is tax-free by this.  Then, Rs. 1 Lakh capital gain from equity mutual funds is tax-free. So this leaves Rs. 1 Lakh CG. So 10% tax is Rs. 10,000 + Rs. 400 Health & Education Cess.Note: Rebate u/s 87A does not apply to Long Term Capital Gains u/s 112A(Charged to tax @ 10%). That is equity mutual funds or shares. Also, see 87A tax rebate benefits are lost if non-taxable MF LTCG is added to ITR! The rebate applies to other long-term and short-term capital gains.Example 3No other sources of taxable incomeAge> 80Money gains from fairness mutual resources = Rs. 6 lakhs.Tax to be paid out = zero.Rationalization: Up to Rs. 5 lakhs is tax-cost-free. The initially Rs. 1 Lakh money attain from equity mutual funds is tax-absolutely free.The tax-cost-free restrict for all other money gains = Rs. 5 lakhsExample 4No other resources of taxable incomeAge < 80Capital gains from mutual funds with 35% < equity < 65% = Rs. 5 lakhs.Tax to be paid = Rs. 15,600.Explanation: Up to Rs. 3 lakhs is tax-free. The remaining Rs. 2 lakhs is taxable at 20% with indexation. (We shall ignore the indexation here). This is Rs. 40,000Rebate u/s 87A: Rs. 25,000So net tax is. Rs. 15,000Health & Education Cess: Rs. 600. So total Rs. 15,600So up to Rs. 4.25 lakhs is tax-free.Example 5No other sources of taxable incomeAge> 80Capital gains from mutual resources with 35% < equity < 65% = Rs. 7 lakhs.Tax to be paid = Rs. 15,600.Explanation: Up to Rs. 5 lakhs is tax-free. The remaining Rs. 2 lakhs is taxable at 20% with indexation. (We shall ignore the indexation here). This is Rs. 40,000Rebate u/s 87A: Rs. 25,000So net tax is. Rs. 15,000Health & Education Cess: Rs. 600. So total Rs. 15,600So up to Rs. 6.25 Lakhs is tax-free.Example 6Income after accounting for standard deduction: Rs. 1 LakhAge < 80Capital gains from mutual funds with 35% < equity < 65% = Rs. 4 lakhs.Tax to be paid = Rs. 36,400.Explanation: Up to Rs. 3 lakhs is tax-free. The remaining Rs. 2 lakhs pf CG is taxable at 20% with indexation. (We shall ignore the indexation here). This is Rs. 40,000Rebate u/s 87A: Rs. 25,000So net tax is. Rs. 15,000Health & Education Cess: Rs. 600 So total Rs. 15,600We want to reiterate that it is impractical to assume all income after retirement would only be from capital gains (it is possible for some people but relatively rare). This is way too risky. So go easy thinking about those SWPs! Do share this article with your friends using the buttons below. 🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users! Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this! New Tool! => Monitor your mutual money and inventory investments with this Google Sheet! 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