Everyone desires to earn more, save more and pay lesser taxes. Therefore, tax planning becomes an essential part of financial planning to ensure that you save tax in every way possible. Although most of our income goes into paying taxes, there are several ways to save tax and opening a Demat account is one of them. It provides some tax-saving routes for investors in shares and equities.
This article illustrates a few ways in which Demat account helps you save taxes.
1. Tax Savings on Dividends
Often companies declare a dividend to their shareholders from their earned profits. If you own the shares of the company, you too will receive the dividend in your Demat account. The dividend amount that you receive is completely tax-free. You only attract tax when you buy or sell the shares at a profitable price.
2. Benefit from Capital Gains
When you sell your shares at a profit, it is termed as capital gains. You can save taxes in capital gains too. Here’s how you can do it.
a) Short Term Capital Gains
When you sell your securities at a profit within a year of its purchase, you attract short term capital gains which taxed at the rate of 15%.
b) Short Term Capital Loss
In case if you suffer a loss on the sale of securities, you can adjust the short term capital losses against short term gains on any asset class. As a Demat account holder, you enjoy the benefit of balancing your gains with the losses on asset classes that are equity-based or not related to equity.
c) Long Term Capital Gains
When you sell your securities held for over a year at a profit, you attract long term capital gains. As per the latest budget, long term capital gains are taxed at 10% if the gains are more than Rs. 1 lakh.
d) Long Term Capital Loss
Just like short term losses can be offset against short term capital gains, the long term capital losses can be offset against long term capital gains. This enables a Demat account holder to save a considerable amount of tax.
e) Carry Forward of Loss
If you have suffered consecutive short term losses, you can carry forward these losses for the next eight years provided the loss is adjusted against the gain from the same asset class. This helps a Demat account holder save taxes.
Having a Demat account not just makes the holding of securities an easy task, it also eliminates the hassles of holding physical certificates. Not just that, it is also a very useful tool to save tax.