What Is FIFO in Share Capital Gains?
FIFO, or First-In-First-Out, means the earliest acquisition of a particular security is treated as the first lot sold when determining the corresponding transaction, subject to the applicable rules.
Quick Answer
FIFO matches a sale with the earliest available purchase lot of the same security. It becomes important when the same shares are bought and sold multiple times.
Why Is FIFO Needed?
When an investor buys the same security on multiple dates, the sale cannot always be matched to an arbitrary purchase lot. FIFO provides a method for identifying the relevant acquisition lot.
How Does FIFO Work?
Under a FIFO approach, the earliest available acquisition is matched first against a subsequent sale of the same security, with later purchases remaining available for future matching.
Where Is FIFO Particularly Relevant?
FIFO is especially relevant for securities held through demat accounts where the same security may be purchased and sold repeatedly.
What Records Help?
Broker statements, demat transaction statements and transaction-level records help establish the sequence of acquisitions and disposals.
Corporate Actions Need Separate Attention
Bonus issues, rights issues, mergers, demergers and other corporate actions can affect the acquisition details and cost. Their specific rules should be applied before performing a FIFO calculation.
Important
FIFO is a transaction-matching method; it does not by itself determine the tax rate or whether the resulting gain is short-term or long-term.
Frequently Asked Questions
Does FIFO mean I can choose which purchase lot to sell?
No. Where FIFO applies, the matching follows the prescribed method rather than allowing an arbitrary selection of lots.
Can FIFO affect my capital gain?
Yes. The acquisition lot matched to a sale affects the cost and holding period used in the capital-gain calculation.
Does FIFO apply to every asset?
FIFO is particularly relevant to securities transaction matching; the applicable rules should be checked for the specific asset and transaction.
Related EZTax Resources
- What Is AIS (Annual Information Statement) in Income Tax?
- AIS vs Form 26AS: What Is the Difference?
- Does AIS Show Capital Gains?
- AIS Reconciliation and AI-Powered Income Tax Filing with EZTax
- Capital Gains Income Tax Guide
Official Sources
For current capital-gains and ITR guidance, refer to the Income Tax Department resources for the relevant assessment year.
