How to Invest in Shares and Save Taxes

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Save Taxes
How to Invest in Shares and Save Taxes

The number one rule for successful personal finance is ‘Save Taxes before Spending’ and although it may seem contradictory to common sense, you can actually Save Taxes by investing in the stock market.

Invest in Shares and Save Taxes

So, here’s how. Equity investments are a source of income and the government doesn’t give you incentives to earn more. But equity is also a source of capital for businesses and a vibrant financial market is an indicator of strong capital accumulation so essential to fuelling growth in production and consumption.

Also, investment in equity gives higher returns than bank accounts, insurance policies or provident funds. The only caveat is that market investment is subject to risk. There are categories of risk that only trained money managers can identify. Making predictions in the stock market may seem like a fool’s errand but the science of probability helps in minimising errors in this regard. So, one option that the untrained public has so that they, too, can participate in the benefits save taxes of financial market booms is a Mutual Fund.

A Mutual Fund is a corpus of smaller deposits to create a larger fund that can then be used to build a stock portfolio. Mutual Funds don’t put all their money in volatile assets, however, and some of it is used in buying fixed-income assets such as bonds. A bond is a type of loan given to corporate or government firms on either fixed or variable interest.

Equity-linked Mutual Funds enjoy several tax benefits:

  1. As per Section 10 (23D), SEBI registered mutual funds or funds created by Public Sector banks, public financial institutions under authorization from the Reserve Bank of India are completely exempt from tax. In other words when calculating your taxable income you should deduct the amount that you have invested in the MF in the relevant financial year.
  2. Further, Mutual Fund investments are 80C investments. So, they are tax free to the tune of Rupees 1 lakh 50 thousand. This would hold for Equity linked funds.
  3. Subscription to units of Mutual Funds would similarly be eligible for deduction from taxable income provided these funds form part of capital to be used in the business of a public company.
  4. No deductions for tax can be made on account of tax collected at source as per Section 196(iv).

Tax Benefits for Shares bought on a SEBI registered stock exchange:

  1. Equity shares or debentures which form part of that capital of public companies or public financial institutions that will be used to operate business are also eligible for tax deductions under Section 80C (xix) to a limit of Rupees 5 lakh.
  2. The main source of income for stock investors is a capital gain. You accrue short-term capital gains tax if you sell within a period of 12 months (equity shares or money market instruments) and long term capital gains tax otherwise. The former are taxed at 15% if transacted on a recognized stock exchange plus Securities Transaction Tax (0.1% for deliverable equity and 0.25% for single-day trading), surcharge and education cess. Long-term capital gains tax against transfer of stocks is taxed at 20% plus surcharge and education cess.
    Apart from stock indices, you should also factor the taxable amount that forms your outgo before transacting on a stock.
  3. You can set off capital losses in one investment against those in another. The losses on capital gains must be set off against losses under the same head for tax return purposes. These losses are to be mentioned in the appropriate ITR form while filing your annual tax return. You may even carry forward capital losses, both long term and short term, for the next 8 years in succession.
    These advantages are not available with other sources of income.

Consult Your Personal Tax Expert Now

According to Section 115QA, income distributed by a domestic company in the name of buy-back of shares not transacted on a stock exchange trigger no tax consequence. The company is solely responsible for payment of Dividend Distribution Tax of 20% individually.

We have not made mention of the Rajiv Gandhi Equity Saving Scheme for first time investors which was ended in the Budget Session of 2017.

All India ITR, one of the most well-known legal compliance platforms, provides Save Taxes solutions that ensure complete compliance with the latest updates in taxation policy and its well-researched services are available at very economical costs.

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All India ITR
All India ITR, one of India’s leading tax prep websites offering personal tax solutions focussing on income tax return filing through tech platforms, be it the web, Android or iOS, is dedicated to making tax returns as easy and convenient and yet as complete as possible. With value added services to help maximise tax savings and minimise tax outgo and tax investment advice the comparative advantage of specialization allows us to uniquely serve our clients. All India ITR is certified to conduct E-return intermediary services by the Income Tax Department of India.

5 COMMENTS

  1. Great work by ITR team it really nice to explaing everything about taxes.
    Thnx for this this really help me alot.This blog is really helpfull for us to know more about how to invest in share. This tell us everything that we should know about how to save tax. This is like a algorithm to fill taxes becaute it tell us step by step how we should fill taxes and yes it is also easy to understand. It tell breifly and accurately about taxes. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster.Great keep it up.

    How mutual funds works ?

  2. Excellent work by ITR.This blog conatins details in breifly and accurate manner
    Great work by ITR team it really nice to explaning everything about taxes.
    It touches each and every corner of tax and its related branches in a neat and aligned manner.
    None of the tax or investment blogs or websites provide such details on how to invest in shares and save taxes.It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.
    We can understand out problem very easily and get our answers faster.
    Thanks for this really help me alot.This blog is really helpfull for us to know more about ITR.
    This is the blog that i needed and i have been searching for such blog from a very long time now
    but today finally i found it and that to even in such an easy language which was really easy for me to understand and very easy to learn from it.
    thanks for this ans i wll always keep in mind the quote “Save before Spending”.

  3. We can understand out problem very easily and get our answers faster. Great work by All-India-ITR team it really nice to explaining everything about shares-and-save-taxes. This blog is really helpful for us to know more about shares-and-save-taxes. It tell briefly and accurately about shares-and-save-taxes. I found this blog to be really helpful to know more about shares-and-save-taxes. these simple words will be helpful for each and every person to go through it.This tell us everything that we should know about shares-and-save-taxes. The best thing about this blog is that we can get every information hear about shares-and-save-taxes. we should not go on different side to search about the-gst-council-and-tax-reform. It’s really great that u take initiative to tell people about this and your way of representation of thought is really good. Excellent team work by All India ITR. Thanks for this this really help me alot.

  4. Investing in shares is bit confusing as well as risky also, There are many blogs on internet about how and where to invest but compare to other the way of explaining this article is very informative and how we can save taxes upon our shares. I just want to know that what is less taxable mutual fund or equity shares according to sebi, As per Section 10 (23D).

  5. Thank you ALL INDIA ITR for this blog has really helped me alot. This really helps and tells a process that is required to fill up an Income tax return. This blog tell us step by step how we should fill taxes and yes it is also easy to understand. Each and every details have been mentioned in simple and clear language.
    i would prefer anyone to have a eye on it to clear all their doubts. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. Great work keep it up.It tell breifly and accurately about taxes. The blog is very detailed and the way it explains us about the tds and its importance is what alot of people dont know about, every thing is very easy to understand and to retain it really helps a person on how to fill up the ITR and how to enquire about it. Great work from ALL INDIA ITR since it is a very well written and a very useful blog. I have one question why will a person invest in shares as they are always subjected to risks?

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