What should you consider when filing taxes using Zerodha's tax reports?

Zerodha's tax reports may require minor manual adjustments, as they don't yet reflect recent changes in tax rules and classifications. Few manual adjustments are required when filing taxes using Zerodha's tax reports, as the system doesn't automatically handle the latest tax rule changes and classifications.

Capital gains tax rate changes

Capital gains are categorised into Long-Term Capital Gains (LTCG) or Short-Term Capital Gains (STCG) depending on the duration for which the asset was held.

Long-Term Capital Gains (LTCG)

• Sales before July 23, 2024: 10% tax rate with ₹1,00,000 annual exemption
• Sales on or after July 23, 2024: 12.5% tax rate with ₹1,25,000 annual exemption

Short-Term Capital Gains (STCG)

• Sales before July 23, 2024: 15% tax rate
• Sales on or after July 23, 2024: 20% tax rate

Action required: You must manually separate your capital gains in the tax P&L based on the sale date to apply the correct tax rates. This can be filtered from the tradewise exits sheet in the tax P&L report. This date-based separation applies only to FY 2024-25.

Buyback taxation changes

A buyback is when a company repurchases its own shares from the market, reducing the number of outstanding shares.

Buybacks before October 1, 2024

• Companies paid the buyback tax
• No tax liability for shareholders

Buybacks on or after October 1, 2024

• Shareholders are liable for tax on buyback proceeds
• Buyback proceeds are treated as deemed dividends (taxed at income tax slab rates)
• Original cost of bought-back shares becomes a capital loss (short-term or long-term)
• Capital losses can be offset against other gains or carried forward for up to 8 years

Action required: You need to manually categorise buybacks in your tax P&L based on whether they occurred before or on/after October 1, 2024, to apply the correct tax treatment.

Equity vs Debt segregation

We now provide separate sections for equity and non-equity instruments in your tax P&L. The non-equity section includes instruments that may have different tax rules due to their asset class (debt ETFs, government securities, treasury bills, etc.). We provide this segregation for your convenience. You must consult a tax expert to determine the correct basis of taxation for these instruments.

Fair market value adjustments

Zerodha updates the Fair Market Value (FMV) based on the highest recorded price as of January 31, 2018, without adjusting for corporate actions.

Action required: Check the exchange corporate action pages and make manual adjustments to the FMV for any corporate actions that occurred after January 31, 2018.

Dividend reconciliation

Some dividends may appear in dividend reports even after companies cancel them following their announcements.

Action required: You should reconcile your dividend reports with your Annual Information Statement (AIS) and manually remove any cancelled dividends before filing your taxes.

Trade-wise charges

We now provide tradewise charges. The sum of tradewise charges of a particular segment may not match the charges in the summary. This happens when you enter a trade in the current FY but don't exit it in the same FY. In such cases, the related charges appear in the overall summary but not in the tradewise entries, since tradewise entries include only realised P&L.

International ETF taxation

International ETF taxation in India

If you invest in international ETFs and hold them for more than 24 months, the gains are classified as long-term capital gains and taxed at 20% with indexation benefit.

If held for 24 months or less, the gains are short-term and taxed as per your income tax slab, with no indexation.

Currently, we include ETFs under the equity segment in Tax P&L and categorise accordingly for LTCG & STCG

Action required: You need to manually separate International ETFs in your P&L for accurate tax calculations.

Gift transactions

Currently, at Zerodha, for tracking and reporting purposes, the closing price of the stock on the date of transfer is considered as the exit price for the person gifting the stock, and the same price is treated as the entry price for the receiver. This price is reflected accordingly in the Tax P&L report.

Action required: While filing income tax returns, you may choose to adopt a different approach regarding the acquisition price of gifted shares based on the tax implications. In such cases, you are advised to manually update the Tax P&L report based on your preferred treatment.

Off market transfers (other than Zerodha gift transactions)

Transfer out: When an off-market transaction is initiated from Zerodha to another demat account, Zerodha does not post any automatic entry reflecting the exit of securities, as such transactions occur outside the platform and are not visible to Zerodha. Accordingly, the P&L and Tax P&L reports are not updated unless you provide reversal details of the transferred shares.

Action required: In such cases, you can either share the details of the shares transferred out from your Zerodha account so that Zerodha can post a reversal entry and update your P&L accordingly, or you may manually update the Tax P&L report while filing your income tax return for accurate reporting.

Transfer-in: When shares are transferred into Zerodha from another demat account, the acquisition details (such as purchase price and date) must be manually entered by you, as these transactions take place outside the platform; Zerodha does not have access to the purchase details from the sender's account. If these details are not updated and the shares are subsequently sold, the P&L will not reflect the correct values due to the missing purchase entry.

Action required: In such cases, you are advised to either enter the acquisition details for the transferred-in shares through the Console platform or manually edit the Tax P&L report while filing your income tax return to ensure accurate capital gains reporting.

Rights Entitlements (REs)

Rights Entitlements (REs) purchased in the secondary market and used to apply for a rights issue are recorded in Zerodha P&L at zero closing price. This cost is not added to the acquisition cost of the rights issue shares. Please consult your tax advisor for accurate tax filing.