Income Tax on Demat Account: What You Need to Know

Demat accounts offer a secure method of storing your securities. They also enable seamless trading for your stocks and other holdings. Understanding the tax implications of your Demat transactions can lead to significant savings. These taxes mainly apply when you sell your shares. Familiarise yourself with the income tax provisions applicable to your holdings. This allows you to factor them into your portfolio management strategy. Equip yourself with the knowledge to maximise your returns. Don't miss out on potential tax benefits!

There are various tax implications based on the nature of the sale of your securities. Here is a quick overview:

Short-term Capital Loss (STCL)

Selling securities at a loss within the same financial year provides tax benefits. Taxpayers can offset these losses against short-term capital gains. They can also offset them against long-term capital gains incurred in the same year. If your losses exceed your capital gains, you can carry them forward for up to eight years. This can offset taxes on future capital gains. 

Long-term Capital Loss (LTCL)

Before the 2018 financial budget, you could not offset long-term capital losses. This applied to losses from selling shares. You also could not carry them forward. Since the budget changes, long-term capital losses from selling shares can be carried forward. These losses can offset future long-term capital gains. However, they cannot be used to offset short-term gains.

Short-term Capital Gains (STCG)

Selling equity shares within one year of purchase and earning a profit triggers a short-term capital gain. If the Securities Transaction Tax (STT) is paid during the transaction, a flat 15% tax applies to STCG. Otherwise, the gains are taxed according to the individual's income tax slab.

Long-term Capital Gains (LTCG) 

Selling shares after one year and making a profit result in a long-term capital gain. LTCG up to ₹1 Lakh earned in a financial year is tax-exempt. Any LTCG exceeding ₹1 Lakh is subject to a flat 10% tax rate (post-2018 budget change).

Securities Transaction Tax

This is a direct tax that applies to all equity shares that you buy or sell on a stock exchange.

Minimising your tax liability is one way to get more out of your investments. Here are some popular tax-saving investment options:

Equity Linked Savings Scheme (ELSS)

ELSS is a type of mutual fund that primarily invests in stocks. It allows tax deductions of up to ₹1.5 Lakhs per year under Section 80C of the Income Tax Act, 1961.  However, ELSS comes with a 3-year lock-in period. 

Unit Linked Insurance Plan (ULIP)

With ULIPs, users can claim tax deductions of up to ₹1.5 Lakh per year under Section 80C for premiums paid. However, it's important to note that ULIPs often have charges and fees. These can affect overall returns.

 

You can now better understand the tax implications associated with Demat accounts. However, if you don’t have an account yet but wish to invest in the stock market, create your account through Bajaj Markets. The process is quick, secure, and can be completed online for a hassle-free experience.

• You do not have to pay tax for simply owning a Demat account. However, the depository participant may charge you certain fees as account maintenance charges.

• Merely holding shares in your Demat account does not attract any tax. You will only have to pay income tax when you sell your shares.

• For short-term capital gains, you need to pay 15% tax. This applies if securities transaction tax is applicable. In other cases, you must pay taxes at the rate applicable to your income slab. For long-term capital gains exceeding ₹1 Lakh, you must pay 10% tax and any applicable cess.