Opening a Demat account has been made mandatory to invest in different types of securities like stocks, shares, assets, bonds etc. The account facilitates a streamlined process and works like online storage for all the investments made. While the account eases investments, it is important to understand the tax implications on gains made through investment.
If you find yourself confused with the taxation policies of gains from demat accounts then this article is just what you need.
Learning the Taxation Policies on Gains through Demat Account
Open Demat Account and get easy access to a wide investment portfolio appears as a win-win situation. However, understanding the financial responsibilities of investing in the stock market is crucial like demat account charges, processing etc.
One such liability is tax implication that comes in different forms like a tax on capital gains or securities transaction cost.
1. Tax on Gains Made through Short-Term
Before we move ahead with a detailed analysis of the tax, let’s first understand what short-term gains are. Profits that you earn by selling your securities within one year of purchasing them come under short-term gains. Here’s how tax is levied on short-term gains:
- A 20% tax is levied on short-term gains as per the union budget 2024.
- In any case, where this tax is not levied or applicable, the 15% additional tax in your short-term gains will be clubbed to your total taxable amount. 1
2. Tax on Long-Term Gains
Long-term gains occur when you hold securities for more than one year and sell them after a year at a higher rate than you purchased. Here’s how tax is levied on long-term gains made through your demat account:
- The budget 2024 has introduced a flat 12.5% tax on gains made through long-term investments.
- The indexation benefits offered before the budget 2024 are no longer applicable to gains made through long-term investments.
- Remember that capital gains made around the ₹1 lakh in one financial year are exempted from tax.
Did You Know?
If you have invested in securities like gold before 31st March 2023 and sell it after three years, you will be taxed 20% on gains along with indexation benefits. 2
1. Security Transaction Cost
Securities Transaction Cost or STT was introduced in India in 2004 to help the government generate revenue through transactions made on purchasing and selling securities in the stock market. STT applies to both purchaser and buyer thus providing the government with dual benefits.
Undef STT a certain percentage is liable for tax and the amount carries depending on the type of securities involved. This is to say that STT applicable on equities will be different from STT levied on stocks and bonds.
2. Taxation on Capital Loss
Understanding capital loss can help you set off taxations levied on short-term or long-term gains. Capital loss occurs when you sell capital assets at a price lower than you purchased.
This can be driven by several factors like changes in market conditions, a prediction of downward movement or a need for liquidity. When you suffer capital loss, you may be able to use it off set corporate gains made from other transactions thus reducing overall tax liabilities.
Before you Leave
Apart from the above-discussed taxation policies on capital gains and transaction costs remember that there is a wide investment pool that comes with several tax exemptions. You can invest in mutual funds, bonds and stocks to enjoy the benefits of tax exemptions under sec 80 C of the Income Tax Act.
Tax liabilities are inevitable and a responsibility as a citizen. What you can do to make your investment journey beneficial is choose a credible platform like Bajaj Trading to open demat account, get a window into the widest investment options and customise suggestions to expand your profit margins.
