After the SEBI guidelines making demat accounts mandatory for traders, it has made the holding of securities an easy task. The traders no more have to deal with the hassle of physical certificates. A demat account is not just for holding the securities in the digital format, they are also a very useful tool to save tax.
Here is everything you need to know about how demat accounts help you save tax.
How to save tax using a demat account?
1. Short Term Capital Gains
The gains come into highlight when the securities which are held for less than a year are sold at a profit. These capital gains are short term gains. These gains are taxed at 15%. The gains also take into consideration the cost of acquisition of the asset and improvement charges if any.
2. Short Term Capital Loss
If there is any short term capital loss, then a demat account holder has the option to offset the short term capital loss against the short term capital gain. This loss is also adjusted with the tax implications on short term capital gains.
3. Long Term Capital Gains
Earlier there we no tax implications for long term capital gains. This helped the investor to maximize the profits by holding the investments longer. Last year, it was made mandatory that long term capital gains will be taxed at 10% if the gins are more than Rs 1 Lakh.
4. Long Term Capital Loss
Just like short term capital loss, you can also offset the long term capital loss to long term capital gains. This helps you to save more on the tax front.
5. Dividend Pay-Outs
Many companies declare dividends at regular intervals. These dividends get credited into the demat account of the shareholder. But an investor only attracts tax when there are nay transactions, i.e. when the shares are bought or sold. There is no tax levied on the credit of dividends.
6. Carry Forward the Losses
If there have been consecutive short term losses, then a trader has the option to carry forward the losses for a period of up to 8 years. But it is important to note that the loss can only be adjusted with the asset class from which the loss was emanated. For a demat account holder, this is a good option as it gives more time to the holder to explore the workings of the share market. This is one of the good benefits of a demat account.
Given that a demat account has so many tax saving benefits, you can open a demat account when you plan to start trading in the stock market. To open a demat account all you need is your PAN and Aadhar card and residence details. You need to choose a depository participant registered with SEBI. The DP is mandatory as it is a regulator between you and the broker. Make sure you read all the regulations, fees and charges before opening the demat account.