Every earning individual wants to save money in some way or the other to meet their long term goals. After all, every penny saved is a penny earned. While government taxes eat a major part of your income every year, there are still ways to save the tax amount with the help of various tax benefit routes. One of the lesser-known routes for saving taxes is by opening a demat account.

If you have been already trading in the share market, you must be aware that a demat account is a special account that holds all your shares and securities at one place in the electronic format. With the introduction of demat account, you no more have to deal with the hassles of physical certificates or worry about losing the certificates. Apart from the above-mentioned benefits, the demat account comes with another benefit; it allows you to save on taxes. Let us see how!

Demat Account and Tax Saving

  • Dividend Income

Companies declare dividend out of their profits and give it to the shareholders of the company. The investors who hold shares in the demat account receive the percentage of dividend declared by the company. The demat account attracts tax only when there is a transaction of purchase or sale of shares. The dividend income for investors is considered an alternate source of income and is tax-free.

  • Set off on Short Term Capital Gains and Losses

The transactions that are done in the demat account attract 15% taxation when the securities are purchasedand sold within a year at a profit. However, the demat account holders also have the privilege to offset their short term capital losses against short term capital gains on any of the asset. The adjustment of short term capital loss helps the demat account holders to save tax on their short term capital gains.

  • Set off on Long Term Capital Gains and Losses

As per the changes in the Union Budget 2018, the shares and securities that are held for over a year will be taxable at 10% for long term capital gain over Rs. 1 lakhs in a financial year after considering the grandfathering clause. However, the long term capital losses can be offset against any long term capital gains. This helps the investors in saving a good amount of tax.

  • Carry Forward of Losses

When the investor suffers from consecutive short term losses, he can carry forward the losses for the next eight years. However, the losses are be extended only on the assets on which they arose. This clause also enables the demat account holders to save taxes.

  • Equity Linked Saving Scheme or ELSS

The biggest benefit of a demat account is that you can purchase mutual fund units in it. Investors can save their taxes by purchasing ELSS units in their demat account online. The deduction is available up to Rs. 1.5 lakhs every financial year under section 80C of the Income Tax Act.

With the above-mentioned factors, you can save tax on your demat account. If you are looking to open a demat account, you may consider a reputed stock broker like Kotak Securities who can help you open a demat account in a smooth and hassle-free maner.

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One Comment

  1. kappil says:

    SIR,
    WHEN I MAKE DEBIT NOTES FOR PURCHASE RETURN. I REDUCE MY ITC CLAIMED IN BOOKS. BUT COUNTER PARTY NOT MAKE CREDIT NOTE IN RESPONSE TO MY DEBIT NOTES. THIS CAUSE EXCESS AMOUNT SHOW IN GSTR 9 IN TABLE 8 GST AVAIL. HOW I COMPUTE MY TAX LIABILITY IN GSTR 9. PLZ SUGGEST

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