Everyone desires to earn more, save more but pay fewer taxes, hence tax planning is essential to ensure that you save tax in every step possible. Did you know that your demat account can provide you with some tax saving routes for investors in shares and equities.
But before we learn how to save taxes, we need to know what is a demat account and how to open demat account.
What is a Demat Account?
Dematerialized account popularly known as a Demat account is a form of account used to hold, trade and transact shares and securities in electronic form. While trading in stocks and securities online, shares and securities are purchased and held in a Demat account, and thereby facilitating an easy trade for the users. A Demat account can hold all forms on securities investments such as shares, exchange -funds, bonds government securities, and mutual funds in one single place.
Post Dematerialization of shares, i.e. conversion of Physical share certificates into electronic form, which was done to ease maintaining and accessing securities investments from anywhere throughout the world. Demat accounts have become a must-have for anyone who wishes to invest in shares and securities, and it is mandatory to open a demat account if someone wants to buy or sell shares vide the stock exchanges.
How to Open Demat account?
You can open demat account using the below mentioned steps.
- You need to contact a Depository Participant, who is registered with SEBI and fill an account opening form.
- You can also approach your bank for opening of a demat
- Provide your KYC documents along with a filled application form
- Sign an agreement along with a schedule of charges with the DP/bank. This agreement will provide and mentions the responsibilities and rights of both the account user and the DP.
- You will be provided with a demat account number, and you can start trading on the stock and financial markets.
How to open Demat account online Open demat account?
Many Banks and DP’s like Angel broking provide online demat account services wherein you simply need to login into the website of the demat account bank or the DP, fill in an application form, upload your KYC and get a demat account within hours.
Save Tax using Demat Account
Before starting operations on your demat account, it is essential to also know how to maximise your investments by saving tax while using your demat account. Your demat account can help investors save tax in the following ways
- Dividend Income Earned on Equity Holdings
Many companies declare dividends and distribute a part of its profits to its shareholders which are credited in your demat account. It is important to know that dividend income is tax-free for the investor and they are liable to pay taxes only on capital gains earned while buying and selling of shares and securities.
- Short Term Capital Gains
Traders often buy and sell stocks within a year and at this moment are liable to pay short-term capital gains of 15% on profits made on buying and selling the stock. These short-term capital gains can be offset against any short-term capital losses incurred during the same financial year, and demat accounts help investors easily track their trade transaction, profits and loss incurred on transactions etc.
- Long-Term Capital Gains
Previously, investors have not been levied on any form of taxation on capital gains earned from the sale of shares, securities held on a long-term basis. But as per the Annual Budget presented in March 2018, long-term capital gains exceeding Rs. 1 lakh will be taxed at 10%.
These long-term capital gains can be offset against any form of long-term capital losses incurred by the investor which can be easily tracked using your demat account.
- Short-Term Capital Losses
Investors do make certain investments wherein they occasionally incur losses while trading in securities. This might be due to the selling of certain shares and securities held for a period of less than a year at a loss. The investor might take such a step in cases where the stock price has witnessed a considerable dip, and its share prices are expected to further fall in the near future, or the investor is in need of liquidity.
Nonetheless, these short-term capital losses can be offset against the short-term financial gains earned during the same fiscal year. Your demat account helps you to track these short-term losses and gains and accordingly plan your taxes.
- Long-Term Capital Losses
Investors can incur a long-term capital loss on account of selling a stock held for a period of over one year at a price lower than the price the stock was purchased, resulting in the long-term capital loss. The investor might take such a step in cases where the stock price has witnessed a considerable dip, and its share prices are expected to further fall in the near future, or the investor is in need of.
However, these long-term capital losses can be offset against any long-term financial gains earned during the same fiscal period. Your demat account helps you to track all of your long-term losses and gains incurred during a fiscal year and accordingly help you plan your tax returns.
- Carry forward losses
In case the investor suffers from a series of short-term or long-term losses arising from the sale of securities held by them liquidity, these losses can be carried forward for the next subsequent eight financial years. Any short-term and long-term capital gains earned in the following eight years can be offset or adjusted against the said losses carried forward.
- Equity Linked Savings Scheme or ELSS
Many ELSS schemes allow the investors an income tax exemption of up to Rs. 150000/- under Section 80 C of the Income Tax Act, when these ELSS schemes are held in their demat account. These help in investors to reduce their taxable income and hereby, in turn, reduce their tax liability.
Demat account is not only a platform to buy, sell and hold shares and equities and financial instruments, but can also be used to save and plan to tax your taxes. With many banks and DP’s offering a wide array of options to open demat accounts, including an option to open demat accounts online, investors should seek an answer to how to open a demat account and how to open a demat account online rather save tax and maximise their investment
