We received a query last week where the NRI client had some small capital gains (Rs 36K approx.). Such income was to be taxed at 10% under normal circumstances. Further, the client apprised that he has interest income earned from bank FD to the tune of 80K. Besides the above two, he didn’t have any other income in India. He requested for tax liability on income accrued above !!

Here is the clarification: 
In India, income up to Rs 2.50 lakhs is exempt from taxes. Any income above that level is taxed at marginal tax rates of 5% (up to 5 Lakhs), 20% (5 Lakhs to 10 Lakhs) and 30% (above 10 lakhs). Capital Gains are however taxed at special rates ranging from 10% (flat) or 20% with indexation. This often leads to confusion among investors. The biggest misconception is that Capital Gains tax liability is not a part of tax calculation from other sources.
Factually though, capital gains are added to the routine income for tax calculations. In the case above, since total income from FD and capital gains is not more than Rs 2.50 lakhs, the entire amount is exempt from taxes. However, if the FD + Capital Gains were to exceed the exemption limit, then the Capital Gain part would be subject to taxation at the lower of marginal rate and special rates

By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

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