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Tax Benefits of Equity Investment

11 Sep 2023

Well, there are a lot of advantages with equity investments. Equity investments are basically tax-free investments. Equity market comprises of Shares, Futures and Derivatives. Let us go on to discover the top 6 tax benefits of equity investment.

Completely tax-free
You must be wondering as to how shares are completely tax-free investments. The explanation to the above mentioned is this:
You might hold shares of a XYZ company. The aforesaid company wants to share a portion of profits specially apportioned for shareholders or equity holders. These are also known as dividends. Quite a lot of companies pay dividends to shareholders on a regular or on a periodic basis. Hence, dividends become a regular source of income for shareholders. However, the good news is whatever income you accrue in the form of dividends is 100% tax-free. In other words, you do not have to pay taxes on the income accruing through dividends. You just have to declare the statement in Form 16 under the section meant for furnishing the required particulars. Investment in equity shares thus keeps you on a top pedestal over other forms of investment which are taxable.

No tension regarding long-term capital gains
For a prospective shareholder, dividends are definitely brownie points when it comes to reaping money from the investment. But there is one more form of income linked to investment in equity shares. When you sell your shares to another shareholder for a higher price, the profit you earn on the resultant transaction is what is known as capital gains. Capital gains are a major source of investment for equity shareholders. When you retain your investment for a year and above, you will not fall under the tax bracket. It then becomes a long-term capital gain. However, if you try disposing your shares within a period of 6 months, from the date of purchase, you will be levied taxes in the form of short-term capital gain taxes.

The option to set off capital gains
Another major tax benefit with regard to equity investment is the option to set off capital gains. The short-term capital gains can be offset against short-term capital loss of another investment. You might have accrued short-term capital gains by selling your shares within a period of 6 months. However, if you have made series of losses on other forms of investment, you can offset the capital gains accruing from the sale of equities against the short-term capital loss arising from a different form of investment. Your taxes can be saved accordingly.

Utilize the carry forward option to save your taxes
Again capital gains accruing from the sale of shares can be carried forward to the next year. The capital losses arising from distress sale of shares can be offset against the capital gains arising from the profitable sale of shares. You can offset capital gains of shares against the capital losses of shares for as many as 8 consecutive years. However, you need to make sure, both capital gains and capital losses are offset against the same class of investment. In other words, if you have profited from the sale of shares, you can utilize profits to offset losses again arising from the sale of shares. Your taxes can be minimized both by offsetting losses or gains and by using the carry forward options simultaneously.

Earn extra tax benefits by investing your money with Equity Linked Saving Scheme
Equity linked saving scheme can open doors to a fabulous range of tax benefits. Apart from the fact that you are no longer liable to pay long-term capital gains tax, investing your money via equity linked saving scheme can open up a lot of opportunities for you to save taxes under Section 80 C. Under the Section 80C, income from salaries, business or real-estate can save taxes when the investment is made via an Equity Linked Saving Scheme. This is to the tune of 1.5 lakhs per annum. You can invest through ELSS (Equity Linked Savings Scheme) and save taxes as high as Rupees 46,000.

Rajiv Gandhi Equity Savings Scheme
This option is more viable for investors who are new to the Stock or the Equity Market. You can earn tax benefits as high as Rupees 50,000 when you invest your money via the Rajiv Gandhi Equity Saving Scheme.

These are the 6 major equity investment tax benefits you can simply look forward to!


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