What is Demat account?
Demat Account is an account that is utilized to buy, sell and hold shares and securities in electronic format. The full name of Demat account is a dematerialized account. In India, NSDL and CDSL are depositories which provide free Demat Account services. Demat Account is the first and foremost requirement for trading in shares, Investment in IPO etc.
Can a demat account be opened for a minor?
Yes. Demat account can be opened in the name of a minor. The account will be operated by a guardian till the minor becomes major. Guardian has to be the father or in his absence mother. In absence of both, father or mother, the guardian can be appointed by court.
Can a trading account be opened in the name of a minor?
Trading account can be opened in the name of the minor only for the sole purpose of sale of securities which minor has possessed by way of investment in IPO (Initial Public Offer), inheritance, corporate action, off market transfers under the following reason like Gift, Donation, Transfer between family members etc.
That means Trading in open market is not allowed in Minor’s account but applying IPO is allowed in Minor’s Demat Account.
However, such an account will be operated by the natural guardian till the minor becomes a major.
Does minor need a bank account before opening a demat or trading account?
No, a separate bank account on minor’s name is not required. Simply add minor to any of your (Guardian) bank account. This is sufficient to open demat / trading account.
Anyway, for tax purpose, minor income is added to the parent’s income, it doesn’t make sense to have a separate bank account
How to apply for IPO in Minor’s Demat Account?
Most of the intermediaries do not allow applying for IPO directly through their application. However, a minor can use net banking ASBA with their demat account details to apply.
What are the income tax implications in the case of Minor?
The minor’s income is added in father or mother whose income is more. The provision of Income tax says: “Any income that accrues or is paid to a minor, other than income earned by minor by his talent or skills, is added to the parent’s income under section 64(1A) and the parent will be taxed just like if it were their own income.”
Whether the natural guardian and the minor are required to comply with know your client (KYC) norms at the time of opening demat/ trading account for the minor?
Yes. The guardian and the minor have to strictly comply with the applicable KYC norms.
Can a minor’s demat/ trading account be continued when he/she becomes major?
Yes. A minor’s demat/ trading account can be continued when the minor becomes major. However, on attaining majority, the erstwhile minor should confirm the balance in his/her account and he/she has to complete formalities as are required for opening a demat/ trading account to continue in the same account/s.
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