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I would like to know about the tax details on selling stocks if I follow this procedure:

  1. Sold stock ABC after holding it for more than a year for INR 1000 for a profit of INR 100
  2. Bought stock BCD for the entire amount INR 1000.

In this scenario, should the profit be considered for taxes? If I do the same thing with a stock which I hold for less than a year, what will be the case?

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Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC.

Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%.

The Income Tax Department of India has a publication titled "How to Compute your Capital Gains," which goes into more detail about a variety of relevant situations.

  • +1. Just for additional info, if you buy and sell the same stock multiple number of times, the matching is on FIFO basis. Long term loss cannot be adjusted. Short term loss can be adjusted against short term gain. – Dheer May 8 '13 at 14:19
  • @Dheer FIFO basis with respect to the holding period, right? For short term losses, that's the same as in the US, correct? If I earn a short-term profit of $100 and incur a short-term loss of $25, I'm only taxed on the $75 net profit. Is this the adjustment you're referring to? – John Bensin May 8 '13 at 14:41
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    If I buy ACB share on 1st 10 ea, @ 100, then on 5th buy another 5 ea at 200. Sell 5 ea at 150 on 10th. Then the profit is 5ea sold at 150 less 5 ea bought at 100. IE I can't say I am selling the 5ea purchased at 200 for a loss at 150. – Dheer May 8 '13 at 14:49
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    Right. Short term 100 profit would be adjusted again loss of 25 and tax is only on 75. – Dheer May 8 '13 at 14:50

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