When One Stock, Multiple Prices Costs You Thousands: The Lot Selection Problem

You Own 10 Shares of the Same Stock at 3 Different Prices

Scenario: You own Apple.

• 3 shares bought at ₹100/share = ₹300 cost basis (LTCG eligible — bought 18 months ago)
• 4 shares bought at ₹130/share = ₹520 cost basis (LTCG eligible — bought 14 months ago)
• 3 shares bought at ₹160/share = ₹480 cost basis (STCG — bought 6 months ago)

Total: 10 shares, ₹1,300 total cost basis

Current price: ₹140/share

You have unrealized losses on all three lot purchases (current value ₹1,400 < cost basis ₹1,300).

You decide to sell 4 shares to harvest a loss. Which 4 shares do you choose?

Most DIY investors answer: 'Apple. I'll sell 4 shares of Apple.'

Then they let their broker handle the specifics. Broker defaults to FIFO (first-in, first-out), so the broker sells the first 3 shares (bought at ₹100) + 1 share (bought at ₹130).

But that might not be optimal.

Why FIFO Isn't Always Best

FIFO is the legal default. For tax purposes in India, FIFO is mandatory for cost basis reporting. But which specific lots you choose to sell affects your tax outcome in subtle ways.

In this Apple example:

If you sell using FIFO (3 oldest + 1 middle):

• Sell 3 LTCG shares at ₹100 cost, ₹140 current = -₹120 loss (₹40 × 3)
• Sell 1 LTCG share at ₹130 cost, ₹140 current = +₹10 gain (₹10 × 1)
• Total: ₹110 loss

If you sell using specific identification (choose the 4 newest shares):

• Sell 3 STCG shares at ₹160 cost, ₹140 current = -₹60 loss (₹20 × 3)
• Sell 1 LTCG share at ₹130 cost, ₹140 current = +₹10 gain (₹10 × 1)
• Total: ₹50 loss

Wait, FIFO gives a bigger loss (₹110 vs ₹50), so FIFO is better here.

But here's the twist: holding period matters for tax treatment.

Better way to think about it:

If you have both LTCG and STCG shares of the same stock, and you need to sell some for tax loss harvesting, you should prioritize selling:

1. STCG shares that are deeply underwater — STCG losses are more flexible (can offset STCG or LTCG)
2. LTCG shares that are only slightly negative — Better to preserve the biggest LTCG losses for when you have big LTCG gains

Specific identification lets you do this. FIFO does not.

For many investors, the difference is ₹500-₹1,500 per harvest cycle. But if you do this wrong repeatedly, or if you have large, concentrated positions, the error compounds to ₹3,000-₹5,000+ per year.

Why Your Spreadsheet Can't Help Here

Most DIY spreadsheets track:

• Symbol
• Quantity
• Cost basis
• Current price
• Unrealized gain/loss

But they don't track:

• Lot-level cost basis
• Individual lot holding period
• Lot-by-lot unrealized gain/loss
• Interaction between lots and your remaining tax position

So when you want to harvest a loss, your spreadsheet tells you: 'Sell Apple.' But it can't tell you 'Sell the 3 newest shares of Apple, not the oldest.'

You default to FIFO. And you miss the optimization.

An optimizer with lot-level data can tell you exactly which shares to sell to maximize your tax outcome.

Real Impact: How Much Money Are We Talking?

For a typical investor with 20-30 concentrated holdings (tech stocks, index fund positions bought over years), lot selection mistakes cost ₹2,000-₹8,000 per tax year.

For a sophisticated investor with 50+ holdings, the cost is ₹5,000-₹15,000+.

Over a 10-year investing horizon, this compounds to ₹50,000+ in lost tax-optimized returns.

More importantly, this is NOT a complicated strategy or tax avoidance. This is perfectly legal specific identification of which shares to sell. Your broker supports it. Your CA supports it. The only reason you don't do it is because manually tracking lot-level data is tedious.

How to Fix This

If you're doing manual tax harvesting:

1. Track your holdings lot-by-lot. For each stock, record purchase date, quantity, and cost basis separately for each purchase.
2. When selling, specify which lot. Tell your broker: 'Sell 100 shares of Apple bought on Jan 15, 2023' (not just 'sell 100 Apple shares').
3. Optimize for your tax situation. Prioritize selling the lots that save you the most total taxes, not just the biggest losses.

If this sounds tedious, it is. This is why an optimizer is useful.

An optimizer with access to your holdings can:

• Automatically identify lot-level cost basis and holding periods
• Evaluate all possible lot combinations
• Recommend which specific shares to sell
• Account for interaction with your other holdings

Result: Optimal harvest decisions in minutes, not hours.

See Your Lot-Level Optimization

Frequently Asked Questions