What Are Unrealised Gains and Losses

Unrealised gains and losses refer to changes in the market value of an investment or asset that has not yet been sold. They represent the difference between an asset’s current market price and its original purchase price. Because no transaction has taken place, these changes exist only “on paper” (often called paper gains or paper losses).

Unrealised Gain

An unrealised gain occurs when the current market value of an asset is higher than its purchase price while the asset is still held.

Unrealised Loss

An unrealised loss occurs when the market value of an asset falls below its original purchase price while the asset remains unsold.

These changes remain unrealised until the asset is sold, at which point the gain or loss becomes realised.

Unrealised gains and losses arise when the market value of an asset changes while the asset continues to be held. These changes reflect price fluctuations in financial markets but do not result in an actual profit or loss until a sale occurs.

Calculation

Unrealised Gain or Loss = Current Market Value – Purchase Price

Example

• Purchase: 100 shares at ₹500 each

• Total purchase value: ₹50,000
   

If the market price rises to ₹650:

Current value = ₹65,000
Unrealised gain = ₹15,000

If the market price falls to ₹450:

Current value = ₹45,000
Unrealised loss = ₹5,000

These calculations show how changes in market price affect the value of holdings while the asset remains unsold.

Indian Tax Framework

• Under current Indian tax rules, unrealised gains are generally not taxed.

• Tax liability typically arises only when the asset is sold and the gain becomes realised.

Taxation After Realisation

• Once an asset is sold, the difference between the sale price and purchase price may be subject to capital gains tax.

• The applicable tax treatment depends on factors such as asset type and holding period.

Global Policy Discussions

• In some countries, policy discussions have explored the idea of taxing unrealised gains for certain categories of taxpayers.

• These proposals have appeared in policy debates in jurisdictions such as the United States.

• Such taxation is not currently implemented in India.
   

Key Takeaways

• Unrealised gains generally do not create a tax liability in India.

• Tax obligations typically arise only after a sale transaction occurs.

Read More: Realised vs. Unrealised Gains

Unrealised gains and losses represent changes in the market value of assets that remain unsold. These price movements reflect differences between the purchase price and the current market value of an asset. While they influence asset valuation and financial reporting, they do not result in actual profit or loss until the asset is sold and the gain or loss becomes realised.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.