Capital Gain Calculations for Shares (Stocks)

MProfit provides capital gain calculation reports after users add buy and sell transactions.

Below is the detailed explanation about how MProfit handles capital gain calculations.

MProfit follows First In First Out (FIFO) method while computing capital gain calculations. MProfit provides Intra-day Profit/Loss, Short Term Capital Gain and Long Term Capital Gain Reports. Buy and Sell transactions of same share in the same contract note are considered for Intra-day calculations. Short Term Capital Gain will be calculated if shares are sold within one year from the date of purchase and Long Term Capital Gain will be calculated if shares are sold after one year from the date of purchase.

One of the most important features of MProfit is to handle capital gain calculations after the corporate actions like Bonus, Split, Merger and De-merger. Capital gain calculations are adjusted automatically based on these actions as per the income tax rule, with effective from the date of this corporate action. MProfit handles multiple Bonus, split, Merger and De-merger action for any stock.

Long term and Short term capital gain calculations are calculated for different corporate actions as follows. Please note that this explanation is for those who need to know how capital gains are handled for various actions like Bonus, Split, Merger and De-merger. MProfit handles all of these automatically after the user adds the Bonus, Split, Merger and De-merger details.

Bonus:
The new bonus shares will be treated as purchased at zero value and the effective date of bonus will be treated as purchase date for capital gain calculations. The old shares will be treated same as before bonus, with no change in purchase price and date. So, when you sell the shares of this company, first the original shares will be sold as per FIFO method and then the bonus shares will be sold. If you sell Bonus shares within one year of receiving bonus, the gain/loss will be treated as short term capital gain and so on.

Split:
Only the purchase price will be automatically adjusted based on the split ratio. Date of purchase will remain the same. Capital Gain Calculations will be calculated based on this adjusted purchase price. The new adjusted price will be displayed in capital gain reports as well as in closing balance report.

Merger:
The new merged company will retain the original purchased date of the original company and the purchase price will be adjusted based on the merger ration. Recent example is Reliance Petro to Reliance (16:1), so for e.g. if 160 Rel Petro were purchased on 01-09-08 at Rs. 100, for the total amt of 16,000. The new 10 Reliance shares will have a purchase price of 1600 with the same purchase date as 01-09-08 and if you sell Reliance within one year from 01-09-08, the gain/loss will be short term in nature and if you sell them after one year, it will be long term in nature.

De-merger:
The new company will have the purchase date as effective date of de-merger. The parent company will retain the original date and purchase price for capital gain calculations. If you break down the purchase price between Parent company and new company, the purchase price will be automatically adjusted as per the allocated amount for each company.