Tuesday, September 17, 2013

How to calculate capital gains tax for the portfolio?

Come financial year end and most of the investors get jittery about tax implications of their portfolio, especially with all the accounting it involves. Many investors do not know how to calculate the tax liability for their portfolio. Knowing tax capital gains tax liability not only helps in filling income tax return but it could also help in making sell decisions. In this post we will walk through the capital gains tax and its calculation.

What is Capital Gains Tax?
Capital Gains tax is the tax that an investor has to pay on the income earned from his investments in a given financial year. These include income from selling stocks, mutual funds, bonds etc.
There are two categories of capital gains:-
  • Short Term Capital Gains - Gains earned from securities that were held for less than a year
  • Long Term Capital Gains - Gains earned from securities that were held for a year or more.

Capital Gains Tax Structure
Following table summarizes the current capital gains tax structure:-

Direct Equity Mutual Funds
  Equity Non Equity
Short Term Long Term Short Term Long Term Short Term Long Term
15.45% = 15% + 3%* Nil 15.45% = 15% + 3%* Nil Applicable Income Tax Slab + 3%* 10.30% (Without Indexation) = 10% + 3%*
20.60% (With Indexation) = 20% + 3%*

* = Education Cess
Indexation helps in reducing the tax liability by taking into account the effect of inflation on the purchase price of a security.

Dividend Distribution Tax
Apart from Capital Gains tax there is tax implication on the dividend earned on held securities. Following table summarizes the dividend distribution tax:-

Direct Equity Mutual Fund
  Equity Debt Schemes Money Market and Liquid Schemes
Nil Nil 13.519% = 12.5% + 5%** + 3%* 27.0375% = 25% + 5%** + 3%*

* = Education Cess, ** = Surcharge  

Capital Gains Tax Computation
Capital Gains Tax Computation is three step process.

1. Determining the holding period for the security
First step in calculating the capital gains tax is to determine the duration for which the security was held before it was sold. This is simple if there was only one buy and one sell transaction in a security. In this case it would simply be the difference between sell and buy dates. But when there are multiple buy and sell transactions in the same security then the principle of First In First Out (FIFO) has to be applied.
Lets try to understand using the following diagram

image
In the diagram above, there were three buy transactions and two sell transactions. First sell transaction occurred on 15-Jan-13. Shares sold under this transaction would be adjusted against shares bought on 15-Feb-12. Since the holding period for these shares was 11 months therefore, it would be considered as short term capital gain. Second sell transaction of 100 shares happened on 15-Mar-13. Now first 50 shares out of the 100 would be adjusted against 50 shares bought on 15-Feb-12. Since holding period for these was 13 months, therefore, it would be considered as long term capital gain. Second 50 would be adjusted against 50 shares bought on 10-May-12. Since holding period for these was 10 months, therefore, they would be considered as short term capital gains.

2. Computing the Capital Gains
After computing holding periods for all the security transactions we would compute the capital gains earned for each of the transaction. Following table summarizes the capital gains earned in the example above.

Sell Transaction Date Corresponding Buy Transaction Date Holding Period Capital Gain Type Capital Gain
15-Jan-2013 15-Feb-12 11 Months Short 50 * 350 – 50 * 200 = 7500
15-Mar-2013 15-Feb-12 13 Months Long 50 * 400 – 50 * 200 = 10000
15-Jan-2013 10-May-2012 10 Months Short 50 * 400 – 50 * 250 = 7500

 

3. Computing Tax Liability

Financial Year Capital Gain Type Capital Gain Tax Liability
2012-13 Short 7500 + 7500 = 15000 15000 * 0.15 = 2250
2012-13 Long 10000 Nil

Same procedure can be applied for all the instruments held in the portfolio to determine the capital gain type and the actual capital gain tax for the overall portfolio.

I hope this would help the investors in clarifying the tax calculations for their portfolio.

Tuesday, September 3, 2013

Comparing Indian Portfolio Trackers

There are many free portfolio tracking applications available for Indian investors. It could be hard for the investors to select the right application for tracking their portfolio.
A good portfolio tracking application should not only provide the current investment status but it should also provide host of other useful features. Some of the features are listed below:-
1. Allow multiple asset classes like Stocks, ETFs, Mutual Funds, Bonds, FDs etc
2. Automatic adjustments of stocks for corporate actions such as splits, bonuses, dividends and mergers.
3. Past performance of the portfolio and compare it with the benchmark
4. Short term and long term gains that help in tax computation
5. Email alerts on corporate actions, important announcements, sudden changes in market value
6. Weekly and monthly report on portfolio performance
In this post we are comparing the features of few the most popular portfolio tracking applications. This should help the investors in choosing the right application for tracking their investments.

Portfolio FeatureMoneycontrolAskkuberEtportfolioIwealth
myiris
NdtvprofitRediff
Subscription PriceFreeFreeFreeFreeFreeFree
Portfolio (Single/Multiple)MultipleMultipleMultipleMultipleMultipleMultiple
Corporate Action Adjustment (Splits/Bonus/Dividend)AutomaticAutomaticAutomaticAutomaticNoNo
Corporate Action Demerger SupportNoYesNoNoNoNo
Securities/Assets HandledStocks
Mutual Funds
ULIP
Bullion
Fixed Income
Loans
Property
Other assets
Stock
ETF
Mutual Fund
Fixed Deposits
Stocks
Mutual Funds
Real Estate
Gold
Silver
Fixed Income
Stocks
Mutual Funds
ULIP
Bullion
Stocks
Mutual funds
Stocks
Mutual funds
Transactions HandledBuy
Sell
Edit
Delete
Buy
Sell
Edit
Delete
Buy
Sell
Edit
Delete
Buy
Sell
Edit
Delete
Buy
Sell
Edit
Delete
Buy
Sell
Edit
Delete
Dividend IncomeYesYesYesNoNoNo
Tax Calculation (Long/Short Term Capital Gains)YesYesYesYesNoNo
Historical PerformanceYesYesYesNoNoYes
Benchmark ComparisonYesYesNoNoNoYes
Bulk Upload/Import TransactionsYesYesYesNoNoNo
Share PortfolioNoYesNoNoNoNo
Realized/Unrealized Profit/Loss SummaryYesYesYesYesYesNo
Email Alerts on Triggered (Bonus/Dividends/Splits)NoYesNoNoNoNo
Sector AllocationYesYesYesNoYesNo
Alerts (News/Price Targets)YesNoYesYesNoNo
Alerts on Price TriggeredYesYesYesNoNoNo
Email Reports (Portfolio Summary)NoYes (Weekly, Monthly & Yearly)Yes (Weekly)NoNoNo
News on stockYesYesYesYesNoNo
Export/Import DataYesYesYesYesNoNo
Transactions History on ChartNoYesNoNoNoNo

Following are the links to the portfolio websites:-
www.moneycontrol.com
www.askkuber.com
etportfolio.economictimes.indiatimes.com
money.rediff.com
www.iwealth.myiris.com
profit.ndtv.com