What is the difference between tax-free bonds and taxable bonds in terms of pre-tax and post-tax benefits?
Generally speaking, the main difference between a taxable bond and a tax-free bond is that while interest accrued on a taxable bond is taxable, the interest accrued on a tax-free bond (which are notified by central/state government, government company, scheduled banks etc.) is exempt from income tax.
Also, the market yield in a taxable bond is higher as compared with that from a tax-free bond.
My relatives had gifted me around Rs 7 lakh cash for my marriage early this year. Will it be taxable and what amount do I have to pay as tax?
Any sum of money received on the occasion of marriage is exempt from tax under section 56(2)(vii) of the Income-tax Act. Accordingly, Rs 7 lakh received by you on the occasion of your marriage should not be taxable in your hands. However, since it is a big amount and is received in cash, the tax officer may question the source of such income if your return of income is picked up for scrutiny.
Therefore, it is advisable to keep a record of the exact break-up of Rs 7 lakh as different sums of gift received from different relatives, so that you are able to demonstrate the source of income in case of any questioning by the tax officer in the future.
However, if the amount is further invested elsewhere, any income derived therefrom will be taxable depending on the nature of income so earned.
I surrendered a unit-linked insurance plan (Ulip) after keeping it for five years. I received Rs 3,000 more than the total premium I paid. Will this amount be classified as capital gain?
Investment in Ulips is eligible for deduction under section 80C up to Rs 1 Lakh. However, section 80C also provides that if a Ulip is surrendered before five years, the entire deduction claimed till the year of surrender shall be treated as the income of the year in which the Ulip is surrendered.
In your case, since the Ulip has been surrendered after five years, deduction allowed in earlier years shall not be treated as income in your hands. However, since units acquired in a Ulip may be classified under the definition of the term “securities” as per the Securities Contracts Act, 1956 and thus a capital asset, gain arising from surrender of Ulip will be taxable as long-term capital gains (since units were held for more than 12 months). Also, in case such a Ulip is categorized as an equity-oriented fund and securities transaction tax is deducted, then the gain of Rs 3,000 will be tax exempt as per section 10(38) of the Income-tax Act.
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