Selling Stocks without un-pledging

I have been doing this for quite sometime now, just wanted to check if there is any catch.
Below is the steps i follow.

Intent is to keep for long term (5years)

  1. Buy stocks say , 100 share of rs 100 each 100 *100 =10,000

  2. Pledge 100 share

3.Hold stock for more than a year, hence LTCG , consider after a year stock trading at 140
4. Buy another 100 share for 140 rs

  1. Next day sell 100 share.

Now based on first come basis my 1 year old stocks will be sold, and new 100 shares will be added.

Made profit of 40 rs per share, as long term capital gain

I do not need to unpledge before selling. Also no need to pledge after buying next 100 shares.

Is there anything i am missing ?

@Bhuvan @ShubhS9 @AlgoEye @VijayNair @viswaram @t7support

Your 1 year and LTCG plan is to be taken, then you must have been doing this at least for more than a year, right? So why are you asking the question now? Did you face any problem now?

If the price of the shares go down, the value of the pledge also goes down, does it not? So you have to increase the pledge, right?

Never pledged, so asking.

If you have not done un-pledging then your fresh trade will be treated as BTST and you won’t be able to avail LTCG benefit rather LTCG Exemption limit benefit. For this additionally you have to unpledge on the day of fresh buy. Is this right @ShubhS9

I did not face any problem, I just wanted to check if this seems good.

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Once I sell shares, The old one gets sold first.

Not if they are still pledged. From the sequence you described, only the new shares can be sold. You have to remove the pledge before you can sell old shares. And since you don’t do that, the old ones do not get sold first.

As to why you have not faced any problem: As @Jason_Castelino mentioned in a recent comment: income tax is self-assessment tax. So the department takes you at your word when you report your income tax liability; there is no automatic check for correctness at the time of reporting (which is: filing returns). But you are supposed to follow the tax laws when you do your computations.

My lay-person understanding is that you have been reporting STCG as LTCG when you do this (I am not sure if BTST gains count as STCG or speculative gains). If/when the IT department notices this, you will have to make amends.

To get the benefit of LTCG you need to unpledge the 100 shares and then sell it. And then buy the 100 shares & pledge it.

First come first serve logic will not apply for shares in pledge status (for zerodha). System will check for free DP qty and then sell it. In your example the new 100qty for Rs140 will be squared off.

If this is the case, then after selling in console Age (days) are latest one, i.e 2 days. If your statement hold true it should be showing more then 365 days. (Age (days))

Zerodha Console, Tax P&L, its showing under Long term Trades.

I am not very sure over here. So I can just give my view.
As far as I understand he will get the benefit of LTCG. Pledge doesn’t matter. It’s always on FIFO basis. I do not think income tax act has mentioned about pledging anywhere in the provisions. In the absence of this information I am of the opinion that we can go for FIFO basis.

Further, each share has a distinctive number associated with it. When we pledge I do not think we pledge as per this number. I understand only the free shares can be sold and ones purchased last will be sold first. But for taxation purpose it will still be FIFO. Obviously I do not have any relevant provision to support the same. But I do get some help from Zerodha console because even here tax PL is calculated on FIFO basis irrespective of whether it’s pledged or not.

Common misconception people have is they think if their income tax return is processed successfully, then whatever they did is right. No. It need not be. Even brandy can cure your cold sometimes. But that doesn’t mean that’s the medicine.

Unless AO has reason to believe that you have declared incorrect income, your return is going to be processed with any hassle.


Pledging means you have mortgaged shares to Broker. Without unpledging you can’t sell them. Broker has all the right on pleaded share

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Great thought provoking topic regrading Pledge and Tax.

01.01.2021 - buy 100 shares and pledged. Market value 100 per share
01.02.2022 - buy 100 shares and not pledged. market value 120 per share.
01.03.2022 - sell 100 shares.

Will the system continue to use FIFO i.e @ 100 per share although these were pledged or jump to 120 when shares are sold on 01.03.2022.

What I feel is it will continue on FIFO basis as Jason has mentioned. I guess it will be too complicated for system to adjust and readjust.

Wish zerodha or any expert can guide, in reality what happens.

having said this - applies only to zerodha because you cannot sell the pledged shares w/o unpledging them first.

If it were 5paisa or Kotak the FIFO rule applies - because for selling no need to unpledge & automatically the first purchased scrip will get sold first.

Its my direct experience, lets see what zerodha staff replies

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For accounting procedures, the FIFO will be considered. So the stocks which you have brought for the price of Rs.100 will be sold and the P&L will get updated accordingly.

FIFO (First In First Out) method is followed for purpose of accounting and computing P&L. So when you sell shares, the shares that are not pledged will be debited from your holdings, and the shares that are pledged will have an average price of Rs. 140.

You don’t have to unpledge the shares or pledge them again in this scenario. Would suggest you check out this thread: Sell a pledged scrip - #4 by Nakul