Tax Saving - Know How to save tax using Demat Account
There is a popular joke that one can teach their children about taxes by eating one-third of their ice cream. No one likes to pay more tax than they need to. As a result, everyone is on the lookout for ways to reduce or save tax outflows. If you mention the words “how to save tax" in a gathering, you are sure to get the attention of every person around you!
In this article, we will share some income tax-saving tips and tricks with the help of your Demat account.
What is a Demat account?
A Demat or dematerialized account is used to hold shares, securities, bonds and mutual funds in an electronic format. The objective behind this account is to move away from maintaining physical copies or documents for shares or stocks and store them safely in a digital platform. It simplifies and expedites the trading process. One can access all their share certificates at the click of a button.
A Demat account is principally similar to a bank passbook. Though it offers a wider range of benefits. When you make any deposits or withdrawals from your bank account, the credit and debit entries are made in your passbook. Similarly, when you buy or sell any shares, etc. it is credited to or debited from the Demat account.
According to the SEBI guidelines passed in 1996, to invest in the stock market, one needs to mandatorily have a Demat account.
How to save tax using a Demat account?
Now you must be wondering how to save tax by using your Demat account. We will solve the mystery for you.
There are three ways to save tax through a Demat account.
1. Dividend
Listed companies distribute a part of their earned profits amongst their shareholders in the form of a dividend. The dividend percentage is at the discretion of the company’s management. When companies pay a dividend, it is directly transferred to the shareholder’s Demat account. This arrangement can help with tax savings. In the case of a Demat account, tax is levied only for trading transactions i.e. which involve purchasing or selling shares. Dividend income does not fall under the ambit of tax calculations. Hence, this dividend income can be used by investors as an additional source of income.
So, your share ownership has dual benefits – you enjoy dividend earnings from time to time and also save on tax outflows.
2. Capital Gains
• Short-term capital gains (STCG): Any capital gains earned by selling off the shares within the holding period are called short-term capital gains. On the other hand, if the sale transaction is done after the completion of the holding period, the gains get classified as long-term capital gains. Long-term capital gains are not taxable until the value of Rs. One Lakh. Many investors make use of this provision to save on their tax outflows and earn higher net income (total gains minus taxes). So, you can store your shares safely in the Demat account for a longer period and benefit from the tax exemption available on long-term capital gains.
• Short-term capital loss (STCL): Usually when you hear the word losses, you can only think of negative things. But there is a way that you can leverage your short-term capital losses to offset or adjust the tax payable on capital gains made in the short-term. So, if you have a Demat account, you can save the tax payable on short-term capital gains by balancing it against the losses incurred (short-term) across any asset class.
Additionally, one can also carry forward short-term capital loss (to set-off the short-term capital gains) for eight years. The only pre-requisite is that the loss and gain need to be from the same category of assets.
• Long-Term Capital Gains (LTCG) – Earlier, LTCG did not attract any tax obligations. However, with the recent changes, gains of this nature are taxed at 10%, if their value exceeds the limit of one lakh. Still, a Demat account holder can save taxes if their long-term capital gains are less than Rs. One Lakh.
• Long-Term Capital Loss (LTCL) –Sometimes, even the fruits of patience are not sweet. Despite remaining invested for a long period, some assets or investments do not yield a positive return and we end up with long-term capital losses. However, just like STCL, one can use their long-term capital losses to offset or adjust the taxes payable due to long-term capital gains.
This arrangement helps the Demat account holder to bring down some of their tax obligations.
3. Equity Linked Saving Scheme (ELSS):
ELSS is best explained with the saying – “killing two birds with one arrow”. ELSS is a type of mutual fund which offers a twin set of benefits to the investors. In addition to the potential of wealth creation and appreciation, in the long run, they also offer tax savings. Investments till Rs. 1.5 Lakh in ELSS qualifies for tax deductions as per Section 80C of the IT Act. So, a Demat account holder can choose to invest in ELSS Mutual Funds and save taxes easily.
Compared to other tax-saving tools available currently in the market, ELSS Mutual Funds offers more (or better) benefits. With a shorter lock-in period of three years and the potential of higher returns, they are becoming a preferred choice for many investors. Additionally, it enables novices or first-time investors to make an entry into the world of equity investing.
How to open a Demat account?
Opening a Demat account is an extremely simple and hassle-free process. One can select any Depository Participant (who is authorized by SEBI). The KYC paperwork requires only basic documents (PAN Card, Aadhar Card, details of residence, income proof) and a photograph of the applicant. While the investor opens the Demat account with the chosen DP, the actual shares are maintained in safe custody by either one of the national depositories i.e. NDSL or CSDL. These institutions are sponsored by government-owned bodies. Hence, one can be assured that their shares are safe in the Demat account.
Choosing the right brokerage firm can make the process even more simple and quick. IndiaNivesh, a trusted name in the Indian financial market can become your investment expert in this. Indianivesh has been offering a wide range of financial solutions in the areas of broking, mutual funds, equities, IPO, insurance and wealth management for the last eleven years. Their technological expertise combined with in-depth market knowledge has helped numerous clients to grow and create wealth.
Final Thoughts:
A smart investor does not stop with merely earning. It is equally important to create wealth and maximize your return by finding out ways to save taxes or other outflows. If you have a Demat account, ensure that you make use of it optimally. It can be a great help not only in trading but also in saving tax outflows.
Now that you know these great income tax-saving tips, you can ensure you get the best out of your hard-earned money. Especially with a partner like Indianivesh.
And if you know someone who is wondering how to save tax, make sure to share this article with them. After all, sharing is caring!
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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Mutual Funds KYC - Know about How to do KYC for Mutual Funds
How to do KYC for Mutual Funds Recent media accounts reported that mutual fund industry now has over Rs. 23 trillion in Assets Under Management (AUM) in February 2019 alone. This could be considered to be a sign that an increasing number of people are taking financial planning earnestly and are setting distinct financial goals for their future.With regards to secure investment schemes that provide above-average yields, mutual funds beat most other options to stand out as the emerging winner. Given the effortlessness through which one can invest in mutual funds, an upbeat market and a wide variety of mutual fund types make it an attractive investment proposition for new and seasoned investors alike. If you are looking to invest in mutual funds, first and foremost, it is essential to know that you can only invest in mutual funds if you are KYC compliant.Understanding KYC for mutual fundsKnow Your Customer, also known as KYC, enables financial institutions to validate your identity. As a first-time investor, you must undergo the KYC process before transacting in a mutual fund. Because it is a mandatory customer identification process, it is critical to submit your identity details to a mutual fund house, a stock broker like IndiaNivesh or any other financial institutions. This is because, according to the Prevention Of Money Laundering Act, 2002, AMCs must abide by the rules and guidelines established by the Act to implement a Customer Identification Proof. Furthermore, there are specific requirements prescribed by SEBI concerning KYC norms of financial institutions and intermediaries to know their customers. KYC for mutual fund requirements are typically in the form of verifying the customer's identity and address, financial standing, occupation and vital demographic data. These rules and regulations are continually updated by SEBI periodically.Valid from January 1, 2012, every investor regardless of the investment amount in mutual funds must comply with KYC to carry out any transaction. Since money laundering is a major issue worldwide, mandating KYC formalities is regarded as an efficient way of preventing illegal activity. The chief objective of the KYC process is to ensure that a real person or individuals are making investments rather than fictitious names. Every mutual fund investor must adhere to the KYC procedure via a KYC Registration Agency (KRA). This information held by the agency is stored in a single repository for all fund houses and intermediaries to access. Examples of these agencies include NSE, CAMS and KDMS.Documents required for KYCTo initiate your KYC process, you must submit the following documents along with the KYC application form and passport size photograph. Documents include:• Identity proof such as driving license, passport copy, voter ID, Aadhar card, bank photo passbook, or PAN card• Address proof such as recent landline or mobile phone, passport copy, electricity bill copy, voter ID, driving license or Aadhar cardTypes of KYC proceduresTypically, you can complete the mutual fund kyc form either through the off-line or online method. CDSL Ventures Ltd has been nominated and authorised by the mutual fund industry to conduct the Know Your Customer procedure.Off-line method• Visit the CDSL Ventures website and download the KYC application form• Fill in the details• Submit the signed application form through the specified mutual fund authorities or intermediaries• Provide identity proof and address proof and the passport size photograph to go along with KYC form• The duly filled form can be physically submitted at any of the following places. These include the Asset Management Company (AMC) through which you are making the investment or the Registered Transfer Agent (RTA) such as CAMS.Online Method• Create an individual account on the official website of the KRA. Fill in your credentials to initiate the online kyc for mutual fund• Key in your registered mobile number and enter your Aadhar card number• Verify the details through the OTP sent on your registered mobile number• Upload a self-attested copy of your e-Adhaar• Accept the consent declaration terms for the eKYCAadhar based KYC through biometricsYou can also opt for Aadhar based KYC if you have the Aadhar card. Request the fund house or agency to send their representative or an official to visit you personally and collect the details from you in person. You can submit a copy of your Aadhar card to the representative, and they will enter your biometric information on the scanner and link it to the Aadhar data repository. As your fingerprints get matched to the database, your credentials stored with the Aadhar database will reveal that your KYC has been validated. This process can ensure that you can go ahead with your mutual fund investment.KYC for non-individualsHowever, if the investor is not an individual, the KYC process must be completed in a different manner. For instance, here are some cases on how to complete the KYC based on the following:• Joint applicants. All or both applicants in a joint applicant setting must complete the KYC individually.• Power of attorney. The power of attorney holder and investor must complete the KYC process individually.• NRIs/PIOs. All NRIs and PIOs must complete the KYC formalities individually.• Minors. If a mutual fund investment is being made on behalf of a minor, the parent or legal guardian who wishes to operate the account on behalf of the minor must complete the KYC procedure. When the underage individual attains adulthood, he or she must complete the KYC formalities at the time.It is important to note that if any KYC documents are found incorrect, insufficient or not in order, the investor's compliance status can get cancelled. Under such a situation, the investor is informed of the status by the relevant authority.To know your mutual fund kyc status and the progress of your KYC process, you can check on the following websites. Here, it is important to note that you can visit any of the below sites depending on where you have given the KYC application form:• CDSL Ventures Ltd. CVL - https://www.cvlkra.com/ • NSE (DotEx International) - https://www.nsekra.com/ • NSDL Database Management Ltd (NDML) - https://kra.ndml.in/ • CAMS - https://camskra.com/Home.aspx • Karvy - https://www.karvykra.com/To know more about your mf kyc status, you can visit any of the above sites and enter your PAN number.Conclusion On completing the KYC procedure successfully, you will be able to purchase mutual fund units from your respective AMC or RTA. You can freely invest in a wide variety of mutual funds of your choice and any amount, after completing your KYC formalities. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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An Overview of Bull Markets and Bear Markets
The terms bull and bear market are quintessential in investment circles. Even though these terms are relatively simple and easy to understand, their causes are sophisticated and complex that depict market conditions. Since the direction of the market plays a significant impact on the portfolio of every investor, it is crucial to understand the meanings of ‘bull’ and ‘bear’ in the larger context. That is knowing its meaning and implications can determine how the bull market and the bear market can affect you. Understanding bull and bear markets In the stock market, bull and bear are terminologies that are used to convey the progress of the market and its direction. Typically, a bear market is indicative of falling prices in the stock market, while on the other hand a bull market is a sign that the market is appreciating in value. The bull and bear market meaning have a tremendous impact on investors. These terms also reveal how the market is shaped by investors' attitudes, ensuing trends and overall market sentiments. A bull market means the stock market is on the rise. A sustained increase in market share prices is typically seen in a bull market. Under such a scenario, investors are upbeat and optimistic that the rising trend will continue over a long period. A sustained bull market scenario also shows the strength of a country's economy and high employment levels. On the other hand, a bear market refers to a declining market. In this scenario, company share prices continue to dip, leading to a downward trend. In such a bear market environment, investors believe that the downward trend will perpetuate into a downward spiral. Typically, a prolonged bear market situation also points to a slowdown in the economy and rising unemployment as companies begin to lay off their workforce. It is important to note here that a bear market can be dangerous to invest in, as securities continue to lose their sheen and value. Bull and bear market characteristics It is crucial to be aware of the ensuing attributes of a bull and bear market. Here is a list of factors of the various bull and bear market conditions. Supply and demand Generally, there is a robust demand and weak supply for securities in a bull market. In such a scenario, most investors look to buy securities, but very few are willing to sell it in an uptrend. Hence, share prices continue to grow, while investors are competing to buy equities that are available in the market. On the other hand, an increasing number of people are looking to sell their equities and securities rather than make purchases. There is a significant low demand for fixed-income securities, while prices of equities rise. Investor understanding Investor psychology and sentiment majorly impacts the market price in any scenario. This is because the behaviour of the market is affected and determined by investor behaviour and psychology. In the stock market, performance of share prices and investor psychology are mutually dependent. In a bull market, investors are continually hoping to reap profits; whereas in a bear market there is immense investor negativity and this sentiment shows as money moves out of equities and into fixed-income securities. Investors are cautious in a bear market and look for positive movements, while at the same time refraining from investing in equities. In short, the stock market decline negatively impacts the confidence of investors preventing them from investing in companies, thus causing an overall price decline as the outflow grows. Correlation between the economy and the stock market Since companies whose stocks are trading in the stock market are significant players in the country's economy, their performance can influence the economy. Typically, it is seen that a weak economy is associated with a bear market. This is because most companies are unable to show profitability as consumers are spending less. In turn, a downturn in company profitability directly affects stocks and their market values. In a bull market, the opposite takes place, as consumers have adequate money to spend and their expenditure propel and strengthens the country's economy. Observing market changes The principal causal factor of whether the market is bullish or bearish is not seen in the short term, but rather its performance in the long run. This means that a bull or bear market is not determined by the stock market’s spontaneous reaction to any specific event. Tiny movements could represent a short-term trend or correction in the market. It is in the extended time frame that determines whether the stock market will turn bull or bear. Sometimes, the stock market may experience an inactive period as it is looking for a direction. Here, a chain of downward and upward movements could, in reality, wipe out gains and losses leading to a flat-market trend. What you can do in any market The ideal thing to do in a bull run is to exploit rising prices and purchase stocks early on in the trend if you can. You can then look at selling them when these stocks reach their peak. Any losses that you experience in the bull market would be minor and temporary. You could briskly and comfortably invest in more equities with a higher likelihood of making a profit. In a bear market, the chance of assuming losses are higher as share prices are continually losing value without an end in sight. Hence, if you are looking to invest in a bear market with the hope that the upturn will be around the corner, you may have to be prepared to take on losses before the positive turnaround takes place. Hence, if you are well-versed in the stock market, you could try short selling, or if you are trying your hand in the stock market for the first time, you may want to stick to safe investments such as fixed-income securities. Some investors opt for defensive stocks, whose achievements are not affected by the trends in the market. Such stocks can be looked at as stable investments at a time when the economy is in a slump; these stocks are even beneficial in a bull market. Examples of these defensive stocks include utilities that are often government-owned and essentials that consumers buy irrespective of how the country's economy is functioning. Conclusion Bull and bear markets play a prominent role on investors’ emotions and investments. Hence, it can be an excellent idea to devote some time in determining how the market is performing before deciding on an investment decision. It is important to note that despite current market sentiments and trends, over the long term, the stock market has always been beneficial for its investors. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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