Every earning individual wants to save more to fulfil their goals in the long run. Even small savings can make a difference to the amount accumulating in the piggy bank of grown-ups. While government taxes eat a part of your income every year, there are several ways to save tax amounts through various tax benefit routes. Opening a demat account can help you save taxes with several tax management routes for share investors.
Taxes in the securities markets
When someone advises you to open a demat account, you brood over the idea for some time. On one hand, you hear about people making profits and becoming millionaires. And, on the other hand you hear about losses in the share market. There is no denying that there are risks present in the investment markets. But still there are many who open a demat account, Why? Because they are smart investors who plan, strategize and invest carefully. And when they lose money by selling shares, they follow the ways to offset the losses.
Securities Transaction Tax (STT) is the tax payable by investors levied on transactions performed by investors on certain securities in the Indian stock exchanges. This tax is not applicable on commodity and currency trading. The STT for buying securities is different from the STT for selling the securities. Students, housewives, retired people, employed professionals and many others open a demat account and invest in shares.
Read more about STT by visiting:
Most new investors are unaware of how their profits and losses from share trading fall under the tax bracket. They do not know the tax concessions they are entitled to. They may not be using the tax schemes to their utmost benefit. Not everyone has a dedicated tax advisor or financial expert to guide them. Trusted broking firms educate their demat account holders with guidance on tax-benefits too.
Let’s discuss some of the ways that experienced shareholders utilise to save tax in India and manage losses using their demat account.
Enjoy tax savings on dividends
Listed companies give a dividend from their earned profits to their shareholders. The management of the company decides the percentage of dividend that needs to be given to investors. If you are a demat account holder who owns shares in the company, you will received the dividend amount from time to time.
Additionally, you will also benefit when you sell off the company shares at a profitable price. But the notable benefit here is, you only need to file your taxes for the profits earned from trading your shares in the demat account. There is no tax on the dividend amount you receive from the company. Many investors use these dividends as an alternate source of income too.
Isn’t it a great benefit for having a demat account with share ownership that gives you tax-free dividends?
Benefit from capital gains
Here’s some more good news. Say you sell the shares of the company at a greater price to another investor, the profit that you earn is called capital gain. There are ways for saving taxes with capital gains.
· Hold for long – Capital gains are taxable if you sell off the shares soon after buying them. These taxable capital gains are called short term capital gains. If you hold the shares for one year or more, there is no tax applicable on the capital gains that you earn from your shares. Many shareholders utilise this tax concession scheme by the government by storing shares for longer periods in their demat account.
· Managing the short term capital loss – If you held shares for a short time and sold it at a loss. Don’t worry, these short term capital losses can be managed by adjusting it with the taxes that are levied on short term capital gains. As a demat account holder, you can enjoy tax benefits on short term capital gains by balancing it with your capital loss on asset classes that are equity-based or not related to equity.
· Carry forward the loss – If you have suffered several short term capital losses, you can carry forward the loss to be set off on short term capital gains for up to 8 years. The only condition here is that the loss can be adjusted with gain from same asset class. But still the advantage is pretty good for a demat account holder who wants to explore the share market and save money in the long-term.
· Long-term capital loss – Even if you wait for a long-term gain to boost your earnings by holding shares, you may face losses. These losses that fall under the long-term capital loss category can also be managed. A demat account holder can use it save tax on long-term capital gains. You can offset your long-term capital loss on long-term capital gains as well.
Equity-linked Saving Scheme
Income earners have to pay a number of taxes. Especially for salaried individuals, tax deductions have to be managed. The Equity-linked Tax Saving Scheme (ELSS) by the government gives you an opportunity to save money from tax deduction. It is an open-ended saving scheme using equity mutual funds that offers tax exemption under section 80C of the Income Tax Act.
The tax exemption can be availed on an investment expense of up to Rs. 1.5 lakhs. By opening a demat account with leading investment brokers who offer ELSS-based investment services, you can grow your earnings. The ELSS scheme comes with a lock-in period of 3 years.
Just finding ways to make money isn’t enough. To maximise your earnings, you have to find legible ways to save money. With accounting standards and government schemes that give so much scope for saving taxes, you should explore the idea of opening a demat account for share investments. Additionally, demat account holders who are Non-resident Indians (NRIs) and foreigners also have provisions to save tax on their share market investments in India.
Investment experts at reputed brokerage firms can help you to open a demat account and guide you with the tax benefits for shareholders. To open a demat account for share investments with Tradebulls, a leading investment brokerage firm, visit https://www.tradebulls.in/depository-services for more details.
Share your thoughts on tax savings for share investors in the comments section.