How To Calculate Capital Gains Tax On Multiple Demat Accounts

Capital gains tax is an essential part of investing, and understanding how to calculate it when you hold multiple demat accounts is crucial for managing your tax liabilities effectively. 

As an investor in India, the Income Tax Department considers the gains you make from selling assets such as shares, bonds, and mutual funds, whether you hold them in one demat account or several. 

The key is knowing how to track and calculate capital gains when assets are spread across multiple demat accounts.

Understanding Capital Gains Tax

Capital gains are profits earned from selling stocks, and they are categorised into two types based on the holding period of your investments:

• Short-Term Capital Gains (STCG): If you sell your assets within 12 months of purchase, you’ll incur short-term capital gains. The new tax rate for short-term capital gains is 20% in India. Prior to 23rd July, 2024, it was 15%.
• Long-Term Capital Gains (LTCG): If you hold onto your assets for more than 12 months, the profit from selling them is considered long-term capital gains. Currently, long-term capital gains over ₹ 1.25 Lakh are taxed at 12.45% without the benefit of indexation. Earlier, the limit was ₹ 1 Lakh and the tax was deducted at 10% over this amount.

These taxes are applicable regardless of whether you have one demat account or multiple demat accounts. The complexity arises in tracking transactions across different accounts.

How To Calculate Capital Gains Tax on Multiple Demat Accounts

When you hold assets in multiple demat accounts, calculating capital gains tax requires accurate tracking of your transactions across each account. Let’s multiple demat accounbreak down the steps:

• Track Transactions for Each Account: First, it’s important to keep detailed records of each purchase and sale transaction across your multiple demat accounts. Ensure that each demat account tracks the acquisition date, purchase price, sale date, and sale price of each security.
• FIFO Method: For calculating capital gains, the First In, First Out (FIFO) method is typically applied. This means that the securities you bought first are the ones considered sold first, regardless of the demat account in which the transaction occurred.
• Combine Gains and Losses: Once you have the details of each transaction, calculate the capital gains or losses for every transaction in each demat account. You need to combine the gains and losses across all your accounts.
• Apply the Relevant Tax Rate: Depending on whether the transactions are short-term or long-term, apply the appropriate tax rate. You will also need to consider the date when you sold the asset. As explained earlier, the tax rates and limits have changed from 23rd July, 2024. 

Let’s take an example to make the process clearer.

Imagine you have two demat accounts. In Demat Account 1, you bought 100 shares of a company at ₹ 100 each in January 2022. In Demat Account 2, you bought another 50 shares of the same company at ₹ 120 each in March 2022. You sold 80 shares in August 2023 at ₹ 150 each, which creates a mix of short-term and long-term holdings across accounts.

Here’s how you calculate the capital gains:

Step 1: Apply the FIFO method

The first 100 shares were bought in January 2022 in Demat Account 1, so the first 80 shares sold will come from this lot.

Step 2: Calculate the capital gains

Purchase price for 80 shares from open demat account 1 = 80 x ₹ 100 = ₹ 8,000

Sale price for 80 shares = 80 x ₹150 = ₹ 12,000

Capital gain = ₹ 12,000 – ₹ 8,000 = ₹ 4,000

Since these shares were held for more than a year, they qualify as long-term holdings. The profit of ₹ 4,000 will be subject to long-term capital gains tax (LTCG).

Conclusion

Calculating capital gains tax across multiple demat accounts can seem overwhelming, but by staying organised and applying the right methods, it’s manageable. 

Keeping track of transactions, using the FIFO method, and ensuring you apply the correct tax rate will help you stay compliant with tax regulations. 

By understanding how capital gains work across different accounts, you can not only simplify the process but also optimise your tax liabilities for better returns on your investments.

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