There are various advantages with equity investments. Equity investments are basically tax –free investments. Shares, Futures, and Derivatives are the components which equity market comprises of. Let's check out the top 6 tax benefits of equity investment.
· Completely tax-free
Shares are completely tax-free investments. You can understand it by the following explanation
Let's assume you hold the shares of ABC Company. The above company wants to share a part of profits especially the assigned shares for shareholders or equity holders. These are termed as dividends. Many companies reimburse dividends to shareholders on a regular or on a periodic basis. Therefore, dividends become a regular source of income for shareholders. However, the good news is whatever income you accrue in the form of the dividend is 100% tax-free. In other words, you do not need to pay taxes on the income accruing through dividends. Investment in equity shares thus keeps you on a top over other forms of investment which are taxable.
· No tension regarding long-term capital gain
For a potential shareholder, dividends are definitely icing on the cake when it comes to reaping money from the investment. Apart from this one form of income is linked to investment in equity shares. When you sell a share to another shareholder for a higher price the profit you earn on the resultant transaction is what is called as capital gains. For equity shareholders, capital gains are a major source of investment. When you retain your investment for a year and above that will not fall under a tax bracket. It is called as long term capital. But if you try to impose 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.
· The option to set off capital gains
The tax benefit with regard to equity investment is to set off capital gains. The short term capital gains can be set off against short term capital loss of another investment. You might have incurred short – term capital gains by selling your shares within 6 months. Your taxes can be saved accordingly.
· Utilize the carry forward option to save your taxes
Capital gains accruing from the sale of shares can be moved forward to the next year. The capital losses arising from distress sale of shares can be set off against the capital gains arising from the profitable sale of shares. Your taxes can be minimized both by offsetting losses or gains and by using carry option forward simultaneously.