Determination of LTCG vs STCG vs intraday gain on sale of a stock

Zerodha
1

Hi, I have a query on how a sale is tagged as LTCG or STCG or intraday. Assume the following scenario.

  1. I bought 10 stocks of STOCKA on Jan 1st 2020.
  2. I bought 10 stocks of STOCKA on May 1st 2020.
  3. I buy 10 stocks of STOCKA on Feb 25th 2021.

Now if I decide to Sell 10 stocks of STOCKA on Feb 25th 2021, would this be treated as Intraday gain or STCG or LTCG?

I have seen that on certain platforms like eTrade, you can actually choose which bucket of stocks you wish to sell thereby providing control to the user on a sale and removing uncertainty. However I could not find such a facility in Zerodha so I would like to know how this is determined right now.

My apologies if this has been posted before and answered but I could not find this on my search.

2

STCG is applicable when your holding period for stock is less than one year, and LTCG is applicable when your holding period for a stock is more than one year, while if you have done intraday trades it comes under Speculative Business Income.

You can read this module on Varsity for more information;

3

Hi @ShubhS9 , My query is not about what LTCG, STCG and speculative income is but rather how Zerodha determines if a specific trade is one of these three in it’s Tax P&L report. If you refer to my question above where I have stocks that fall under all 3 buckets and do a sale, how does Zerodha know which tax bracket to apply? Because in this specific scenario you can technically tag the sale as either of the 3 categories. Hope it clarifies.

Also, the article you referred is really informative but outdated as we now have taxes LTCG as well. Please ensure this is updated as this might provide incorrect information to users here.

4

This will be based on your holding period, if you download the Tax P&L report, you can refer to the ‘TRADE WISE EXITENTRY sheet’ to see the holding period.

In the above example, you have given, as you bought 10 shares on Feb 25th, 2021 and sell 10 shares of the same stock on same day, this will be considered as an intraday trade.

Also, whenever you sell shares from your holdings, we follow FIFO (First In First Out) method. This means the shares you purchase first are considered to be sold first from your account. You are required to consistently follow FIFO to report the P&L in your income tax returns.

Taking example you have given forward, had you not bought 10 shares on February 25th, 2021 and only sold 10 shares, this would’ve been debited from the shares you have bought on January 1st, 2020 and as your holding period is more than 365 days, it will be considered under LTCG.

5

Thanks @ShubhS9 for explaining this in detail. So this means the FIFO rule is applied by default for trades other than on the same day?

And within the same day, if the Sell leg of the trade occurred first then I assume the FIFO rule is applied… And the intra day rule kicks in when the sell leg is AFTER the buy leg?

The IT link you shared is just leading me to their home page and not the circular… But I understand what you mean by the FIFO rule so thanks a lot!

6

Right FIFO rule is applied when you sell shares from your holdings.

No, No!! Doesn’t matter if you Sell first and then Buy or Buy first and then Sell, when you Buy/Sell shares from your holdings and square-off the position on same day it will be considered as intraday trade.

It is working fine for me. You can visit it from this article as well.