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Declaring your demat account holdings for ITR

To make investments in stocks, mutual funds, bonds and other varied securities, it is compulsory to open a Demat account. This account holds your securities in electronic form and is usually opened with a bank or a brokerage online. One thing to consider is that any profits or gains you may make through the sale of your securities in your Demat account are liable to be taxed as these are viewed as an income earned by you. According to the regulations of the Income Tax Act of 1961, you have to declare any earnings that take place through your Demat account holdings. 

Tax Implications

Whatever profit you may earn by the sale of your debentures, stocks, mutual funds, bonds, or other securities held in a Demat account, within a year of purchasing these, is considered a capital gain made in the short term. A flat tax of 15% incurred by investors as a securities transaction tax, or STT,  is levied under the laws of the Income Tax Act. In cases where you have held assets for more than 12 months, you are said to hold long-term assets and you are liable for a tax on ‘long-term capital gain’ if you earn any profits. If your long-term profit amounts to Rs. 1 lakh and under, you are not taxed at all, but any amount earned in excess of this is liable to be taxed at 10% of the amount earned. The Income Tax Department is stringent about declaring your earnings and if the applicable tax is not paid, you face severe penalties. 

How to Declare Holdings in a Demat Account

As soon as you open a Demat account online, your KYC details are exposed to the Income Tax Department and transactions made henceforth are transparent. For filing your Income Tax Returns and declaring any income earned through your Demat account holdings, you have to first get a Demat account statement and a transaction statement from your DP or depository participant (or bank or broker). These have to be filed with your regular income tax returns. To declare your Demat holdings, you must be a registered user on the Income Tax Portal of India at Home | Income Tax Department. Here are the steps:

  1. You must log on to the Income Tax Portal. Before taking any further steps, your Demat account details should be ready with you. Furthermore, your Demat account is already linked with your PAN Card, email ID and your phone number. 
  2. Once you have logged in to the Income Tax Portal, you will see a Dashboard. On the right corner, you have to click on ‘My Profile’.
  3. A page will be displayed, and you will see ‘Demat Account’. Click on this.
  4. Now you can view a tab that says ‘Add Demat Account’. Click on this now.
  5. You will then need to choose the type of depository (NSDL or CDSL). 
  6. You will be requested to enter the relevant details pertaining to your Demat account, like your DP ID, Client ID, phone number and email address. 
  7. Then you have to press the ‘Validate’ button. This ensures that you have requested the addition of your Demat account (and any holdings thereof) to your income tax account details. 
  8. You will receive a message on your phone stating that your Demat account has been added and automatically your holdings will be declared to the Income Tax Department in this way. 

Invest and Gain

Although you may earn high returns on your investments held in your Demat account, it is necessary to pay the requisite tax on these after you declare your holdings. When you open a Demat account with a broker like Motilal Oswal, you can gain a plethora of information about investments and related aspects. 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 


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