I had put some money in an FMP for 366 days. My auditor calculated the FMP return like an FD. I told him about the indexation benefit of FMP but he wants to know specifically in which act it is mentioned?
-Abdul Kadar
You may ask your auditor to refer to Section 112 of Income Tax Act 1961. Scheme Information Documents of all FMPs contain this information too. Indexation helps you save taxes as it allows cost to match with the current value. FMP capital gain is taxed as below:
Short term capital gains are directly added to income and taxed as per the applicable slab rate. However, as per Section 112 of IT Act, tax on income from long term capital gains arising from the transfer of units shall be lower of the following:
1. 10 per cent plus surcharge and cess at 3 per cent on the amount of tax, and surcharge on the long term capital gains computed without indexation benefits.
2. 20 per cent plus surcharge and cess at 3 per cent on the amount of tax, and surcharge on the long term capital gains computed after substituting the indexed cost of acquisition for the cost of acquisition.
This article was originally published on October 16, 2013.
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