Your buy average price follows the First In, First Out (FIFO) method, where you sell the shares that you bought first from your account. The Income Tax Department (ITD) mandates using FIFO to report profit and loss (P&L) when filing income tax returns.
The buy average calculation of your holdings does not include intraday trades. If you sell your holdings and buy them back on the same day, any difference will be regarded as an intraday profit or loss, and the buy average of your holdings will remain unaffected.
Example Scenario
| Trade Date | Symbol | Type | Qty | Rate |
| 16-2-2018 | ITC | B | 50 | 260 |
| 19-2-2018 | ITC | B | 30 | 256 |
| 21-2-2018 | ITC | S | 20 | 275 |
| 25-2-2018 | ITC | B | 20 | 270 |
In the above table, 20 quantity is sold in the third row. As per the FIFO method, this is deducted from the 50 quantity in the first row. So 30 quantities will remain, which are considered whilst calculating the buy average.
Your buy average of ITC in the holdings is ₹261 [(30 260) + (30 256) + (20*270) / (50+30-20+20)]
The buy average calculation is unaffected by intraday trades of shares that are part of your holdings since these trades are considered as separate transactions. This is because the shares do not physically move in or out of your demat account.