Section 80C of deduction, will not reduce capital gain tax but will reduce liablity of tax in income from salary, or other head(Income from dividend and interest as well). Also that you can claim deduction upto total of 1.5 lac .
You will get 40k of fund as deduction and you have to pay tax for taxable income.
Suppose you have salary income of 3lac, short term capital gain of 30k , speculative income of 2lac ,income from other source(dividend and interest) of 20k and deduction (ELSS investment) of 40k then ,
Deduction of ELSS investment will deduct from salary income and
Taxable income will be 2.6lac on salary income.
Taxable income on speculative income is 2lac.
Taxable income from other source is 20k
Taxable income from short term capital gain u/s 111A is 30k
Deduction will be not claimed under income from speculative income or capital gain.
Any loss incur in speculative business will be carryforward for next 4 year and loss incur in non-speculative business will be set-off from income from other source and remaining loss will be carry forward for next 8years.
Any deduction u/s 80C-80U will be deduct from salary income and rest amount will be taxable, no set-off from salary is provide to other head losses. Same as Speculative business loss. Note that deduction are also claimed in non-speculative business.
Tax liablility for OP from business income is same as income from salary . Any loss in business will not set-off from salary. Tax from capital gain is of 10%-15% for listed equity share.
So tax computation will be
2.6lac+2lac+20= 4.8lac @5% from 2.5lac-5lac for under 60 year old OP. so tax will be 11500
Short term capital gain tax is of 15% so tax will 4500.
Total tax = 11500+4500=16000
There is no rebate as total income exceed 5lac mark.
Thank you very much for detailed answer. It is really helpful.
I have one question.
In above example if I don’t have salary and speculative gain,
then the income will be only (Dividends and Interests) i…e. 20k .
So will the investment of 40k in ELSS, make the taxable income 0 ? (20k -40k)
Exemptions or deductions are exempted and deducted from the total income, and if the remaining income after such exemptions and deductions, is less than the basic exemption limit of 2.5 lacs, you will not pay any tax.
You can get income from capital gains, savings bank interest, FD interest, dividends, PPF interest, even tax refund interest, but if all these are less than the exemption limit of 2.5 lacs, you will not pay any tax. Of course, sometimes TDS and other taxes are cut which will be refunded to you after IT department checks your details.
So no matter where you are getting your money from, if it is less than the basic exemption limit, you will not pay any tax.
If you fall under no tax bracket, and all of your income combined, no matter how you get it is below the basic exemption limit, there is no tax, and even if any tax is cut, it will be refunded.
Although, if you think you will cross the exemption limit, then it is good to invest in 80C section, PPF or ELSS so that this 80C allocation will be exempted from you income, and you will again come under the exemption limit.
To put it simply, if you are earning 4 lacs per annum, from many income sources, put 1.5 lacs in PPF/ELSS, this is exempted, so 2.5 lacs will be your taxable income, and there is no tax till 2.5 lacs, so you will not pay any tax.
But make sure, you have a record every income, every rupee, to avoid confusion and headache.
ELSS comes under section 80C, and there are many products which belong to this section like PPF, senior citizen schemes, home loan payments etc , and the maximum you can invest in this section to avail exemption is 1.5 lacs. It does not matter if you invest in 1 product or many products, the maximum exemption will be 1.5 lacs. So ELSS is for deduction.
The capital gain from ELSS is not STCG but LTCG, because you cannot sell ELSS units before 3 years from the date of investment. Only if you sell in 1 year then it is STCG.
And like I said, no matter what your income is, FD interest, LTCG, STCG, dividends, you will not pay any tax, if the total income after exemptions and deductions is 2.5 lacs. Even if any tax in any form is cut, it will be refunded.
So LTCG or STCG will not reduce your income, if it is under basic exemption limit.
If your income in 2.5 lacs, then you don’t need to invest in any product to save tax, because you are under exemption limit, and if your income is more than 2.5 lacs, and if you don’t have any deductions and exemptions from your employer, which I don’t think is possible, but if that is the case, you can personally invest in tax saving products.
So if you have 4 lacs as STCG, and if you invest 1.5 lacs to avail the deduction of 80C section in ELSS, then your total income becomes 2.5 lacs, so no tax.
And if it is even 1 more rupee extra, 2,50,001, and if there are no more deductions or exemptions applicable, then you have to pay tax on this 1 rupee, as you will be in the income tax slab of 5%, so 5% on 1 rupee, 20 paise will be the tax, and I think there will be some cess, some more little tax on top of the 20 paise.
Understand this single simple point, ELSS is for reducing the total income, thereby reducing tax. ELSS and STCG are not related.
STCG/LTCG or any other income is taxable if it is more than 2.5 lacs, so we invest in ELSS or PPF or other such products to decrease the taxable and bring it down to 2.5 lacs.
Income < = 2.5 lacs, no tax
Income > 2.5 lacs, no deductions/exemptions, then tax
Income > 2.5 lacs, use deductions/exemptions, then income becomes < = 2.5 lacs, then no tax.
As you said that tax only has to be paid on net income >2.5. For Example if net income is 3L STCG then tax has to be paid only on 0.5L only. so 50k * 15% = 7.5k
But from what I can remember last time I filled ITR myself online (ITR2). The income tax website asked me to pay tax on full STCG 3L !!! i.e. TAX = 52k
(I was in belief that STCG tax has to be paid no matter what, so I didn’t do more research. )