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Demat accounts allow you to store your securities safely and trade in the stock market. While enjoying the convenience of electronic ownership of shares, keep the tax implications for various demat transactions in mind.

 

These taxes mainly apply when you sell your shares. Pay close attention to the income tax provisions applicable to your holdings when managing your portfolio.

Income Tax Implications on a Demat Account

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

  • Short-term Capital Loss

It occurs when you sell your shares in the same financial year and incur a loss. At this stage, the Income Tax Act allows you to offset these losses either against long- or short-term capital gains. 

 

In other words, you can reduce your tax liability on other capital gains in the given year. If your losses are more than your capital gains, you can carry them forward. You can do so for up to 8 years. 

  • Long-term Capital Loss

Before the 2018 financial budget, you could not offset or carry forward long-term capital losses incurred from selling shares. This is because long-term capital gains and losses were exempt from taxes. 

 

The government now allows you to carry forward the losses from selling your shares. However, you can only offset your long-term capital losses against long-term capital gains earned in a financial year.

  • Short-term Capital Gains (STCG)

This occurs when you sell your equity shares within a year of purchase and earn a profit. Income tax on Demat transactions of this nature is set at 15%.  This rate only applies if you pay the Securities Transaction Tax (STT). Otherwise, your gains will be taxed as per your income tax slab.

  • Long-term Capital Gains (LTCG)

Selling your shares one year after purchase and earning a profit from the sale results in LTCG. Previously, LTCG was tax exempt, which meant that the tax on Demat account transactions was nil. 

 

In the financial budget of 2018, the government removed this exemption. Now, if your gains exceed ₹1 Lakh, you are liable to pay LTCG tax at the rate of 10%. In case your gains are under ₹1 Lakh, they are exempt from taxes for the financial year. 

  • Securities Transaction Tax

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

Ways of Saving Tax Through Investing

Minimising your tax liability is one way to get more out of your investments. Here are a few vehicles that help you save tax:

  • Equity Linked Savings Scheme (ELSS)

This is an investment instrument that comes under the mutual fund category. In ELSS, a major part of your fund goes towards equity and associated securities. 

 

This investment is ideal if you want to lower your tax liability and continue earning returns. With ELSS, you can get tax deductions of up to ₹1.5 Lakhs u/s 80C. However, these investments come with a lock-in period of three years.  

 

  • Unit Linked Insurance Plan (ULIP)

This is another instrument that allows you to lower your tax liabilities. With a ULIP, you get the freedom to decide how to allot your money. 

 

While a part of your invested funds go towards premium payments, the insurer invests the rest in market-linked securities. This allows you to earn potentially high returns while saving tax of up to ₹1.5 Lakhs under Section 80C in a financial year. 

 

With this information in hand, 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 on Bajaj Markets. The process is quick, secure, and can be completed online for a hassle-free experience.

Frequently Asked Questions

How can I save taxes on the sale of my shares?

If your capital gains are under ₹1 Lakh for securities held for over a year, you can get a tax exemption on your LTCG.

How much tax do I need to pay on transactions of shares made through a Demat account?

For short-term capital gains, you need to pay 15% tax if securities transaction tax is applicable. In other cases, you must pay taxes at the rate applicable to your income slab. 


Under LTCG, you can enjoy tax exemption on gains of up to ₹1 Lakh. On exceeding ₹1 Lakh, you must pay 10% tax and any applicable cess.

Do I have to pay tax on owning a Demat account?

No, you do not have to pay tax for owning a Demat account. However, the depository participant may charge you certain fees as account maintenance charges. 

Do I pay tax for holding shares in a Demat account?

No, you will only have to pay income tax when you sell your shares. Holding your shares does not attract any tax.

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