Investing in debt-related schemes? Avoid dividend plans, take equity schemes to make more money

While making any investment decision, one needs to understand each and every detail of the income as it's an investors right to maximise the investment if there is any option available. In India, people have started to look at debt-related investments but they don't know how much tax would be levied on their income and whether it's advisable for them to go for dividend or not! Tax and investment expert Balwant Jain advises debt-related investors to avoid taking dividends as it costs around 29 per cent of tax while for simple lock-in without dividend plan, it would cost on the basis of the income tax slab one falls in and any slab for a public in general would be lesser than 29 per cent of tax.

Commenting upon the matter Balwant Jain told Zee Business, "In debt-related investments, Dividend Distribution Tax (DDT) is at 29.12 per ent that company deducts while awarding the dividends. If you go by the tax slabs post budget 2019, one needs to pay 20 per cent of his or her income if its income is in between Rs 5 lakh to Rs 10 lakh." Jain advised debt-related investors to invest in long-term equity schemes as it allows tax exemption on up to Rs 1 lakh income and above Rs 1 lakh income, one need to pay paltry 10 per cent tax — much below the dividend schemes.

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Speaking on the taxes being levied on debt-related schemes Jitendra Solanki, SEBI registered tax expert said, "There are two types of taxes being levied on debt-related investments — Capital Gain Tax  (CGT) and DDT. The CGT is divided in two parts — investment for short-term or up to three years and long-term investment for more than three year investment."

Elaborating CGT, Solanki added, "For short-term CGT, your investment income gets added into your income and tax is levied on the basis of the Income Tax slab you are falling in while for long-term debt-related investment your income would be levied 20 per cent tax with indexation benefit." Solanki further added that an investor need not pay the tax but its the company that would deduct 29.12 per cent of investor's income while distributing the dividend.

On how to maximise your income in debt-related investments Balwant Jain said, "A person has a window to decide whether they want to pay tax on their capital gain tax with or without indexation. Without indexation, one need to pay 10 per cent of his or her net gains on investment. So, an investor must calculate the tax need to be paid with or without indexation before filing his or her tax."