Investors looking for fixed-income investments may find PSU bonds attractive. Before making any investment decisions, it is important to understand PSU bonds’ tax implications fully. We’ll be discussing the tax implications of PSU bonds investing.
Impôtation on Interest Income
PSU bonds interest is taxable according to the investor’s income tax slab. PSU bonds interest is added to an investor’s income and taxed according to their tax bracket. The tax rate may range from 0% to 30%, depending on the investor’s income.
Tax Deducted at the Source (TDS).
TDS applies to interest earned on PSU bonds. TDS applies to interest earned on PSU bonds. Is 10% TDS not applicable if the investor has filed Form 15G and Form 15H to the bond issuer? Form 15G or Form 15H is a self-declaration form where the investor declares that they have income below the taxable limit. TDS is, therefore, not required.
Capital Gains Tax
The sale of PSU bonds is subject to capital gains tax. Depending on the duration of the bonds, the capital gains can be classified as either short-term or longer-term. The bonds held for less than 12 months are considered a short-term capital gain. Bonds held for longer than 12 months are considered a long-term capital gain.
Taxes on short-term capital gains will be based on the investor’s income tax bracket, while long-term capital gain will be subject to a flat rate of 20%. The long-term capital gains rate will be 10% if the investor sells bonds on a stock exchange.
PSU Bonds exempt from tax
Some PSU bonds are exempted from tax. These bonds are issued and held by government-owned companies. They are exempted from tax under sections 10,15,(iv),(h) of 1961’s Income Tax Act. These bonds are attractive investments for investors who want tax-efficient investments.
It is important to remember that these bonds might have a lower interest than non-exempt PSU bonds. Before making an investment decision, investors should weigh the tax benefits and the potentially lower returns.
Conclusion
Investors looking for fixed-income investments may find PSU bonds a good investment option. Before making any investment decisions, it is important to understand PSU bonds’ tax implications fully. PSU bonds interest is subject to tax according to the investor’s income tax bracket. TDS is also applicable to the interest earned. Capital gains tax applies to the sale of PSU bonds, so investors should be aware of the tax rates and the holding period to determine their tax liability. Investors looking for tax-efficient investments may find PSU bonds attractive as they are exempted from tax. Before making any investment decision, investors should consider their investment goals and risk tolerance.
