Capital Pains: Accurately reporting capital gains across multiple brokers

However, these statements are siloed and may not account for transactions across different accounts. This fragmentation can lead to discrepancies in calculating the total capital gains, potentially resulting in under or over-reporting. Such errors can attract scrutiny from tax authorities and may lead to penalties. For instance, an investor might sell the same stock on different platforms at different times. Without consolidating these transactions, it's challenging to determine the accurate holding period and, consequently, the correct tax treatment.

Understanding FIFO

The income tax department mandates the use of the first-in-first-out (FIFO) method for calculating capital gains. Under FIFO, the first shares purchased are considered to be the first ones sold. This ensures a consistent approach to determining holding periods and calculating gains. When dealing with multiple brokers, investors must consolidate all purchase and sale transactions, sort them chronologically, and then apply the FIFO rule. Which can be cumbersome without the right tools and lead to errors if not done meticulously.

Grandfathering capital gains

Introduction of the long-term capital gains (LTCG) tax on equities has added another layer of complexity for shares bought before January 31, 2018. The cost of acquisition is considered to be the higher of the actual purchase price or the fair market value (FMV) as on January 31, 2018. This provision, known as "grandfathering," aims to protect investors from paying taxes on gains accrued before the tax was introduced. However, applying this rule correctly requires accurate records of purchase prices and FMVs, which may not always be readily available, especially when transactions span multiple platforms.

Also read | Filing ITR? Four key points salaried taxpayers should keep in mind

Tools and platforms to simplify reporting

Navigating the complexities of capital gains reporting can be daunting, especially when managing multiple brokerage accounts. Fortunately, various platforms have evolved and simplified the process. These tools help consolidate transaction data from multiple brokers, ensuring that all relevant information is brought together in one place for accurate reporting.

One key feature of these tools is their ability to automatically calculate capital gains based on transaction history by applying the necessary methods, such as FIFO. This eliminates the need for manual calculations, reducing errors and saving time. Additionally, they take into account important provisions like grandfathering, ensuring that these are factored into the final tax computation.

Also read | Digital Form 16: How to access, download, and use it for e-filing your income tax returns

Recent developments 

The income tax department has updated the income tax return (ITR) forms for the assessment year 2025-26. Notably, the ITR-1 and ITR-4 forms now include provisions for reporting LTCG from listed equity income of up to Rs 1.25 lakh, simplifying the filing process for small investors. In addition to changes in the ITR forms, the tax department has revised the capital gains tax rates effective from July 23, 2024. Under the new structure, LTCG exceeding ₹1.25 lakh will be taxed at 12.5 percent, a shift from the previous 10 percent tax rate for gains above ₹1 lakh. Meanwhile, short-term capital gains (STCG) will now be taxed at 20 percent, which was previously taxed at 15 percent.

Conclusion

While managing investments across multiple brokerages offers flexibility and diversification, it also necessitates meticulous record-keeping and accurate reporting of capital gains. By consolidating transaction data, applying the FIFO method, understanding provisions like grandfathering, and leveraging digital platforms, investors can navigate the complexities of capital gains reporting with confidence. Staying informed about updates in tax regulations further ensures compliance and optimises tax liabilities.

Also read | Personal Finance: Investing for tax savings is now passe

In the digital age, proactive management of investment records is not just beneficial, it's imperative for every investor aiming for financial success.

The author is the business head of ClearTax

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.