Tax planning involves understanding the different tax rates applicable to various types of income. For the Assessment Year (AY) 2024-25, the Income Tax Act specifies special tax rates for certain types of income such as capital gains, dividends, and other specified incomes. This guide provides a detailed overview of these special tax rates, helping you optimize your tax planning and compliance.

Capital Gains Tax Rates

Capital gains tax rates vary depending on the type of asset and the holding period. Here’s a breakdown of the tax rates for different types of capital gains:

Short-Term Capital Gains (STCG)

Equity Shares and Equity-Oriented Mutual Funds:

Holding Period: Less than 12 months

Tax Rate: 15% (Section 111A)

Other Assets (Real Estate, Debt Mutual Funds, Gold, etc.):

Holding Period: Less than 36 months

Tax Rate: As per individual’s income tax slab rates

Long-Term Capital Gains (LTCG)

Equity Shares and Equity-Oriented Mutual Funds:

Holding Period: More than 12 months

Tax Rate: 10% on gains exceeding ₹1 lakh (Section 112A)

Other Assets:

Holding Period: More than 36 months

Tax Rate: 20% with indexation benefits (Section 112)

Residential Property:

Holding Period: More than 24 months

Tax Rate: 20% with indexation benefits

Example: Reporting Capital Gains

Mr. Rao sold equity shares worth ₹5 lakh, which he held for 18 months, and made a profit of ₹1.2 lakh. He also sold a property held for 4 years, with a sale consideration of ₹50 lakh and an indexed cost of ₹35 lakh.

Equity Shares (LTCG):

Exempt up to ₹1 lakh, so taxable LTCG = ₹20,000.

Tax Liability: 10% of ₹20,000 = ₹2,000

Property (LTCG):

Sale Consideration: ₹50 lakh

Indexed Cost: ₹35 lakh

Taxable LTCG = ₹50 lakh – ₹35 lakh = ₹15 lakh

Tax Liability: 20% of ₹15 lakh = ₹3 lakh

Dividend Tax Rates

Dividend income is taxable in the hands of the shareholders. The rates vary based on the source of the dividends:

Domestic Company Dividends:

Taxable at the applicable slab rates for individuals.

Foreign Company Dividends:

Taxable at the applicable slab rates for individuals.

Foreign Tax Credit: Credit can be claimed for taxes paid in the foreign country.

Example: Reporting Dividend Income

Ms. Patel received ₹1 lakh as dividends from an Indian company and $2,000 (₹1.5 lakh) from a US company, with $500 (₹37,500) tax withheld in the US.

Indian Dividends: ₹1 lakh taxed at applicable slab rates.

US Dividends:

Gross Income: ₹1.5 lakh

Foreign Tax Credit: ₹37,500

Net Taxable Income: ₹1.5 lakh (with FTC of ₹37,500)

Other Special Tax Rates

Certain incomes are taxed at special rates as specified by the Income Tax Act. Here are some examples:

Winnings from Lotteries, Game Shows, and Horse Races

Tax Rate: 30% (Section 115BB)

No Deduction: No deductions under Chapter VI-A are allowed against such income.

Interest on Securities

Interest from Infrastructure Debt Fund: 5% (Section 194LB)

Interest from Indian Company’s Bonds: 5% (Section 194LD)

Reporting Process

To correctly report your income subject to special tax rates in the ITR for AY 2024-25, follow these steps:

Step 1: Determine the Appropriate ITR Form

ITR-2: For individuals and HUFs having income from capital gains, dividends, and other sources but no income from business or profession.

ITR-3: For individuals and HUFs having income from business or profession, including income from trading.

Step 2: Maintain Proper Records

Transaction Records: Dates, amounts, and value of transactions.

Broker Statements: Details of all trades, dividends received, and interest income.

Foreign Tax Credit Documentation: Proof of tax paid in foreign countries.

Bank Statements: Reflecting the amounts credited and debited.

Step 3: Calculate Income and Tax Liability

Capital Gains: Calculate STCG and LTCG separately for each asset class.

Dividends: Calculate gross and net dividend income after foreign tax credit.

Other Special Incomes: Calculate income from winnings, interest on securities, etc.

Step 4: Fill in the Relevant Schedules in ITR

Schedule CG (Capital Gains): Report STCG and LTCG from various asset classes.

Schedule OS (Other Sources): Report dividend income, interest income, and winnings.

Schedule SI (Special Income): Report incomes subject to special tax rates.

Case Study Examples

Example 1:

Mr. Singh has the following income for FY 2023-24:

STCG from Equity: ₹3 lakh

LTCG from Property: ₹10 lakh

Dividends from Indian Company: ₹1 lakh

Winnings from Lottery: ₹50,000

Tax Calculation:

STCG: ₹3 lakh taxed at 15% = ₹45,000

LTCG: ₹10 lakh taxed at 20% = ₹2 lakh

Dividends: ₹1 lakh taxed at applicable slab rates

Winnings: ₹50,000 taxed at 30% = ₹15,000

Example 2:

Ms. Rao has the following income for FY 2023-24:

LTCG from Foreign Stocks: ₹5 lakh

Dividends from US Company: $3,000 (₹2.25 lakh with $750 (₹56,250) tax withheld)

Interest from Indian Bonds: ₹50,000

Tax Calculation:

LTCG: ₹5 lakh taxed at 20% = ₹1 lakh

US Dividends: ₹2.25 lakh (with FTC of ₹56,250) taxed at slab rates

Interest: ₹50,000 taxed at 5% = ₹2,500

Conclusion

Understanding and correctly applying special tax rates for different types of income is crucial for accurate tax filing and optimization. For AY 2024-25, maintain detailed records, accurately calculate your tax liability, and ensure proper reporting in the relevant ITR schedules to stay compliant and maximize your tax savings. Consult with a tax professional if needed to navigate the complexities of special tax rates and make informed financial decisions. This proactive approach will help you effectively manage your taxes and optimize your overall financial planning.

 

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