InvestorQ : Is it true that equity is more tax efficient compare to other investments?
Khushi Patel made post

Is it true that equity is more tax efficient compare to other investments?

rhea Babu answered.
3 years ago
One of the main reasons equities are attractive compared to other asset classes is the favorable tax treatment that it gets. This tax shelter on equities has to be understanding at 3 levels…
Dividends declared on equity shares are entirely tax-free in the hands of the investors. Effective the Union Budget 2016, any investor who earns more than Rs.1 million as dividends on equities has to pay an additional 10% tax. However, most small and medium-sized investors will remain outside the ambit of taxation of dividends.
Secondly, we need to understand the aspect of tax on capital gains. When you make a profit on the sale of equity shares you have to pay capital gains tax. But for that, you first need to understand long-term and short-term capital gains on equities. Under the Income Tax Act, equity gains are long-term in nature if they are sold after being held for more than 1 year. Long-term Gains were entirely tax-free in the hands of the investor till the fiscal year 2017-18. Effective April 2018, long-term gains are taxable at 10% above annual gains of Rs.1 lakh. Equities held for less than 1 year are classified as short-term gains and taxed at a concessional rate of 15%. Thus equities have an advantage in the classification of long-term capital gains and on the rate of tax compared to other asset classes.
There is a third benefit on equities which is restricted to the ELSS (Equity Linked Savings Schemes) of mutual funds. Amounts invested in ELSS are eligible for tax exemption up to an outer limit of Rs.150,000/- per annum. This substantially enhances the post-tax yield on such investments.