How capital gain calculated on physical settlement of stock. I got different opinion on different platforms and experts. So I just little bit confused. Please brief:
I sold 1 lot of SBIN PE @ strike price of Rs 500 at Rs 20 and the same is deep in the money and the position is physically settled(Closing price of SBIN on expiry day is Rs 430).
Now my question is acquisition cost( for capital gain purpose) of SBIN would be Rs 500(i.e. strike price)
Or Rs 480( Rs 500- premium received)
Or Rs 430 (closing price of underlying).
May be @Quicko can answer better, but my understanding and experience says that your cost of acquisition should be the strike price (of your contract). This assumption I’m taking is based on two facts:-
The very definition of put (call) contract is right to sell (buy) at a specific price. By selling that put option you have given buyer of that put contract a right to sell at strike price. Your contract has been assigned means the buyer of put contract has sold his asset at strike price, so your price of acquisition is THE strike price.
Zerodha contract notes:- while calculating your fund liability, they use strike price only.
(But somehow, for physical settlement of future contracts, zerodha ‘delivers’ the shares at spot price and the difference of buying vs spot price is cash settled in contract notes-which may or may not be tax efficient depending upon loss or profit.)
As far as the premium received, you keep them irrespective of what happens to physically settled contracts ( different from index options).
What zerodha does with options is absolutely right. Delivery happens at strike price.
I am of the opinion that Cost of acquisition should be the price at which you traded. Simple reason being, future is a contract wherein you have agreed to buy or sell the underlying on a future date at a predetermined price.
Not sure why it’s delivered at spot price. May be am missing out on something. If somebody could explain the logic behind this it would be great.
Dear @Jason_Castelino ,
This is for your kind information, that I have little knowledge of taxation, and I know it’s hard to give specific answer(because by using options any one can convert f&o business income into STCG and vice versa).
I am just tagging @Quicko , because I thought they have vast experience & perhaps they may have deal the given case in income tax scrutiny level, Appeallate tribunal level, high court level and even Supreme Court level.
But I think, I am wrong (I think you understand).