Difference Between Individual and HUF Demat Accounts

Demat (dematerialized) accounts are a must for storing and investing in financial securities, including bonds, shares, mutual funds, etc. They do away with the need for physical share certificates and enable smoother stock market transactions. You can open these accounts with DPs or Depository Participants, which are registered entities with depositories like CDSL or NSDL. There are several types of demat accounts, however, including individual and HUF (Hindu Undivided Family) accounts. The best choice depends largely on your tax planning and investment objectives, among other factors. Here is a closer look at them below. 

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What is an Individual Demat Account?

An individual demat account is a digital account that holds securities like shares, mutual funds, and bonds in electronic form. It is a must for investing and trading in the stock market, and can be opened by Indian residents above the age of 18. Parents or guardians can also open these accounts in the name of minors, while NRIs may also open the same. 

A valid PAN card is compulsory to open an individual demat account, along with adherence to KYC norms (providing identity and address proofs and bank statements).

What is a HUF Demat Account?

A HUF (Hindu Undivided Family) demat account that is one under a HUF and is managed by the Karta on the family’s behalf. HUFs can hold and trade in shares, mutual funds, bonds, etc., while being taken as a separate tax entity with their own PAN and independent tax returns (separate from the tax returns of members). This is a popular choice for family or legacy-based investing, enabling better management of family wealth and also for potential tax benefits in case of multiple generations in the household. 

Also Read : Demat Account for HUF - A Beginner's Guide

Key Differences: Individual vs HUF Demat Account

Here are some of the main differences between individual and HUF demat accounts. 

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Tax Implications of Both Accounts

HUFs are taxed at the same slab rates as those applying for individual taxpayers. However, since the HUF is taken as a distinct and separate taxable entity, the basic exemption of ₹2.5 lakh is available on its total taxable income, over and above the individual income tax benefits. HUF also qualifies for benefits under Sections 80C, 80D, 80G, etc., just like individuals. It is also eligible for exemptions under Sections 54F and 54 with regard to capital gains. 

For individuals, they have to pay STCG (short-term capital gains) at 15% in case they sell assets held for one year or less. LTCG (long-term capital gains) applies to profits resulting from assets held for more than one year and is taxed at 10% for gains above ₹1 lakh for equity and 20% with indexation for other assets.

For HUFs, in case capital assets are sold within 36 months, they have to pay STCG, and LTCG is payable in case they are sold after 36 months. Section 10 (38) exempts capital gains on the sale of listed equity shares that are held for more than 12 months, where STT is paid. This period is 24 months for unlisted shares. 

Dividends earned through HUF trading accounts are considered income for the entity and are taxed likewise. The dividend has to be TDS-deducted, and in case this income exceeds ₹10,000, TDS is 10% for individuals, and if the beneficiary does not furnish PAN, then it goes up to 20%. HUFs can create tax arbitrage opportunities by enabling income to be separately taxed from their individual members and potentially lowering overall liabilities. 

Also Read : Hindu Undivided Family (HUF): A Smart Way to Save Income Tax

Pros and Cons

Here is a look at the pros and cons of both accounts: 

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Which Should You Consider?

If you’re a retail investor, trader, or salaried/self-employed professional looking to trade or invest in securities, an individual demat account is the best possible option. In case you are managing your family wealth or looking at legacy-based investing or estate planning, you can take the HUF route for your demat accounts. For high-net-worth families, a combination of both can be the right strategy to optimally lower tax liabilities alongside. 

Conclusion

You have to choose the right demat account based on your tax planning requirements, future objectives, and preferred investment style. For personal gains and streamlined investing/trading, an individual demat account is preferable, while for efficiently managing family wealth and lowering tax liabilities, HUF demat accounts may be the best option.