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Capital Gain Calculations for Stocks

MProfit automatically creates capital gains reports after users import digital contract notes of stocks or manually enter buy/sell transactions. These include Intra-day Profit/Loss, Short Term Capital Gains and Long Term Capital Gains reports. Advanced reports showing unrealised capital gains as well as the holding periods for stocks are also available in MProfit and they help investors learn what their capital gains liabilities are before deciding to sell their shares. MProfit does have an advanced feature to allocate charges to the purchase value and sale value of each stock in contract notes and this reduces the capital gains tax liability for the investor.
Below is a detailed explanation about how MProfit handles these capital gains calculations.

  • MProfit follows the First In First Out (FIFO) method when computing capital gains
  • Buy and sell transactions of the same stock in the same contract note of the same date are considered as intra-day transactions
  • A capital gain/loss will be characterized as short term if the stocks are sold within one year from the date of purchase and long term if the stocks are sold after one year from the date of purchase

In addition, MProfit also adjusts capital gains calculations for corporate actions including Bonuses, Splits, Mergers and De-mergers for any stock. Capital gain calculations are adjusted automatically based on these corporate actions in accordance with the income tax rules effective on the date of the action.
Please read below for detailed information about how MProfit handles long term and short term capital gains calculations following each corporate action.
Bonus:

  • The new bonus shares are considered to be purchased at zero value and the effective date of the bonus is treated as the purchase date for capital gains calculations
  • The old shares are treated as the same value as they were before bonus, with no change in purchase price or date
  • Upon sale of shares of this company, first the previously held shares are sold in accordance with the FIFO method and only then are the bonus shares sold
  • If bonus shares are sold within one year of receiving the bonus, the gain/loss is treated as a short term capital gain

Split:

  • A split only leads to a change of the purchase price for capital gains calculations while the date of purchase remains the same
  • The new adjusted price will be used in capital gains calculations and is displayed in the capital gains reports as well as the closing balance report

Merger:

  • The new merged company will retain the old purchase date of the original company and the purchase price will be adjusted based on the merger ratio

De-merger:

  • The effective date of purchase for the new company will be the same as the original purchase date for the parent company from the perspective of capital gains calculations
  • The purchase price for each new company will be automatically adjusted in capital gains reports as per the allocated amount for each company following the de-merger

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