Though with the new provisions it is now mandatory to have a demat account in place for the day-to-day trading in shares or just to have the physical delivery in shares in demat form or electronic format. It is to be remembered that the electronic keeping of securities safeguards them against any losses. Notably, in a new ruling, SEBI has still allowed investors to still keep the shares in demat beyond the otherwise December 5 deadline so as to provide them a relaxation.
Despite this having a demat in a place, comes with another benefit as it allows you to save on taxes, this is illustrated in few of the ways below:
Dividend pay-outs on equity: Some of the companies declare dividends to its shareholders at regular intervals from the profits earned, nonetheless as and when this sum gets credited into the denat account, an individual investor attracts taxation only in respect of the trade transaction i.e. shares bought and sold and no taxation liability arises in case of dividends.
Short term capital gains: The gains come into picture when securities held for below one year are sold at a profit and these gains which also take into account the cost of acquisition of the asset plus any improvement charges made attract 15% taxation.
Short term capital loss: A demat account holder is also allowed the privilege to offset any short term capital losses against short term gains on any of the assets. Also, the loss is allowed to be adjusted with any of the taxi implications on short term capital gains.
Long-term capital gains: Now as per the latest Union Budget 2018, now securities held for over a year will attract long term capital gains tax and the taxation rate of 10% applies for gains over Rs. 1 lakh in a financial year taking into account the grandfathering clause.
Long term capital loss: The demat account here also comes with an advantage as long term capital losses can be offset against any long term capital gains. This enables investor to save considerable tax.
Carry forward of losses: Also, in case of consecutive losses of short term nature, the investor is allowed to carry forward these losses for the next eight years but the point to be noted here is that the losses can be extended in respect of only the asset from which they arose. This provision indeed is helpful in saving taxes.
Also, equity linked saving scheme or ELSS allow investors to save taxes if the schemes are held in demat account through the 80C clause which allows deduction to extent of Rs. 1.5 lakh invested in such schemes in a financial year. Such deduction when reduced from the gross taxable income, helps save money for the investor through lesser tax outgo.