Demat Account: What are the tax implications of transactions?

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demat account often comes free of charge these days, it's essential to recognise that maintaining them and actively engaging in transactions, whether it's buying or selling securities, does come at a price. While the allure of zero opening fees might initially seem like a win-win situation, it's crucial to understand the financial responsibilities that come with managing a demat account over time. Just when you thought you were diving into the world of investing to grow your wealth, along comes the taxman, ready to take a slice of your profits.

In this article, we'll delve into the different taxes associated with purchasing and selling financial assets. Additionally, we'll answer important questions like whether STT applies even if losses are incurred while trading stocks and what the threshold for exemption on long-term capital gains (LTCG) is. Capital gains tax is a type of tax levied on the profits earned from the sale of certain financial assets.

This tax is calculated based on the difference between the selling price of the asset and its original purchase price. Also Read: How to reactivate a dormant demat account? MintGenie explains For instance, if you bought a stock for ₹100 and sold it for ₹200, which is higher than your buying price, the profit from this sale is considered as a capital gain. The tax rate applied to capital gains depends on various factors, including the type of asset and the duration for which it was held.

Capital gains are categorised into two main types: Short-term capital gains: These are profits earned from the sale of assets that were held for a year or less. Short-term capital gains are typically taxed at higher rates compared to long-term capital gains. Equity-oriented assets are subject