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.
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