How to compute capital gain

Hi

As per Sec 45(2A) of Income-tax Act shares that are sold in demat form, the First in First Out(FIFO) method  has to be applied for computation of capital gain. Any gain araising from tranfers of shars with holding period more that 12 months are tax free, and if any gain arising from short term securitis 15% tax rate will apply.

ExampIe for FIFO method

If say, 2500 shares were sold from out of this account, then the period of holding and the cost of acquisition of the first 2000 shares should be as from 25-5-2007 and the cost thereof, whereas the balance 500 shares will be treated as having been acquired in November 2003, at the relevant cost. This is the effect of the FIFO method.

 (a) FIFO method will be applied only in respect of the dematerialised holdings because in case of sale of dematerialised securities, the securities held in physical form cannot be construed to have been sold as they continue to remain in possession of the investor and are identified separately.

(b)  In the depository system, the investor can open and hold multiple accounts. In such a case, where an investor has more than one security account, FIFO method will be applied accountwise. This is because in case where a particular account of an investor is debited for sale of securities, the securities lying in his other account cannot be construed to have been sold as they continue to remain in that account.

  (c)  If in an existing account of dematerialised stock, old physical stock is dematerialised and entered at a later date, under the FIFO method, the basis for determining the movement out of the account is the date of entry into the account.

Its very simple my dear frnd vishal,

                        To be explained to you in a general language,initially the shares use to be in the physical form,but now completely it has been made in a demat form.The person who has purchased shares initially,now has to convert it in to demat form.

                             Now the shares are available only in demat form.So as per the Income Tax Act,1961,when the shares are sold,for the purpose of computation of capital gain,it has to be calculated on the basis of FIFO method.

                     EX:Y purchased 100 shares in1990 in physical form and converted in to demat A/C in 2011.Mean while he putchased 200 shares in 2010 in demat form.In 2012 he sold 150 shares.Now how to calulate capital gain?

                            Ans:The capital gain shall be calculated on the shares which has been purchased in 2010 i.e,in Demat A/C.Its not that you have purchased 1st shares  in 1990 and you have to take it as a basis for computing C.G.

                                  The answer would be different if the shares purchased in 1990 converted in to Demat form in 2005 i.e, here for the purpose of computing C.G,you have to take this shares as a basis.

                                  In simple terms,the shares which has been 1st credited in to Demat A/C should be considered for computing C.G