Sunday, February 05, 2006

The FIFO algorithm for selling Shares

I have been trying to find out which is the exact FIFO algorithm that should be applied if you are trying to sell shares in your account purchased at various points in time. I never got a satisfactory answer until I saw the following article in a old issue of Hindu, which I am quoting here. Hopefully this information is also useful you if you are looking for clarity.

The CBDT's Circular No. 768 of June 24, 1998, has clarified the method of working the period of holding. In such cases the circular envisages three situations:

When an investor holds part of his holding in dematerialised form, the FIFO method will be applicable only in respect of the dematerialised holding. This is so because in such a case, sale of dematerialised shares cannot be mixed with sale of shares held in physical form

When an investor holds dematerialised shares in more than one account or depository, the FIFO method will be applied account-wise as securities lying in another account of the same investor cannot be construed to have been sold as they continue to remain in that account

Where there is an existing account of dematerialised stock, old physical stock is dematerialised and entered at a later date, the securities first credited to the account, will be deemed to have been sold. The date from which this is held will, however, be reckoned, not from the date of dematerialisation, but from the date of purchase.

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