What Are The Tax Implications Of A Demat Account? Click Here To Learn More

A Demat account is the key to progress because it allows you to expand your horizons in learning and investing, not only in equities but also in one's acumen in trading and assiduously investing. Therefore, a demat account is one of the most consequential fiscal instruments today.

Now, when buying or selling shares on myriad platforms, one needs to be aware of the cost that these transactions entail.

Here are the tax implications on your Demat account that you need to know.

According to the rulebook, in pursuance of the Income Tax Act of 1961, when an investor makes gains from selling the shares that were once held by the investor through a demat account, they are then liable to pay taxes on them. These gains are called 'Capital Gains'.

Then, on the other end of the spectrum, there is 'Capital Loss', which is when an investor sells an asset that was once held by them at a lower price than what it was purchased at.

Security Transaction Tax

Introduced in 2004, the Security Transaction Tax or STT, is the tax levied on transactions, that is, the purchase or sale of stock, derivates or mutual funds.

Short-Term Capital Gains (STCG)

First on the list is the Short-Term Capital Gains (STCG). According to the Income Tax Act, any holding that has been held for 12 months or less is considered as a Short-Term Capital Asset. A gain of Rs 20,000 or above, that is made on these assets is then STCG. According to the rules, 15 per cent of what you gain from these assets can be subjected to tax.

Long-Term Capital Gains (LTCG)

Similar to STCG, Long-Term Capital Gains or LTCG, come into the picture with assets that have been held for a period of over 12 months or a year, which are called Long-Term Capital Assets. Here, any gain made on these assets, which amounts to gains of over Rs 1 lakh, would be subjected to a 10 per cent tax.

Capital Loss

Now, when it comes to the realm of capital loss, as mentioned before, a capital loss can be used to offset the tax burden.

If an investor incurs loss in the process of selling their holding, they can then use that to offset the gains made in another investment in the same year, thereby mitigating the overall tax burden on investors. Just like gains, there are two types of Capital Losses as well, namely Short Term Capital Loss and Long term Capital Loss for assets sold within a year and after 12 months, respectively.