Realized vs Unrealized Gain: What's the Difference?

Key takeaways

• A realised gain is profit you lock in when you sell, redeem or settle; an unrealised gain is a paper profit on something you still hold.
• For individual investors in India, unrealised gains are not taxed; tax applies only when the gain is realised.
• For businesses that keep accrual books, a foreign currency invoice revalued at year-end creates a gain or loss that is booked and taxed even before the client pays; most freelancers not under tax audit are outside this rule.
• An unrealised loss cannot reduce your tax; only a realised loss can be set off.

A realised gain is the actual profit you have locked in by selling an asset for more than you paid, while an unrealised gain is the increase in value of an asset you still hold. Until you sell, redeem or settle, the gain is only on paper and can grow, shrink or turn into a loss.

For example, you buy 100 shares at ₹500 each for ₹50,000. When the price reaches ₹650, you have an unrealised gain of ₹15,000. If you sell all 100 at ₹650, that ₹15,000 becomes a realised gain. That is the realized vs unrealized gain difference in one trade: the profit is real only once the shares are sold.

A gain is realised the moment the asset leaves your hands for cash or its equivalent. That happens when:

• you sell shares or square off a trade
• you redeem mutual fund units
• a bond or fixed deposit matures
• a client pays an invoice in foreign currency and it is converted
• you sell property, gold or a business asset

Realised gain = sale price − selling costs − purchase price − buying costs. Take 100 shares bought at ₹500 with ₹50 brokerage and sold at ₹700 with ₹70 brokerage: ₹70,000 − ₹70 − ₹50,000 − ₹50 = ₹19,880. Securities transaction tax (STT) cannot be deducted when you work out a capital gain, so leave it out.

An unrealised gain uses the same formula with today's market price in place of the sale price, which is why it changes every time the price moves.

Realised and unrealised gains in mutual funds

In a mutual fund, a rising NAV gives you an unrealised gain, and redeeming units turns it into a realised gain. Each SIP instalment counts as a separate purchase with its own date and NAV, and units are redeemed first in, first out, so the oldest instalments are sold first and may qualify as long-term while newer ones do not. Switching from one scheme to another is a redemption too, so it realises any gain and can create tax.

In apps such as Zerodha Kite or Groww, realised P&L is the profit or loss on trades you have closed, and unrealised P&L is the paper profit or loss on positions and holdings you still have open. Three details explain why these numbers often differ from your tax figures.

• Margin, not money: for open intraday and F&O positions, unrealised P&L is the mark-to-market value. Mark-to-market losses reduce your available margin, but mark-to-market profits cannot be used as margin.
• Charges: some apps show realised P&L before brokerage and taxes, others after. Check which view you are reading.
• Business income, not capital gains: profit on intraday and F&O trades is business income for tax, even though the app calls it realised P&L.

The biggest difference is often the cost method. Suppose you buy 10 shares at ₹100 in January and 10 more at ₹140 in March. An app that shows an average price puts your cost at ₹120. If you sell 10 shares at ₹150 in June, the average method suggests a ₹300 gain, but for tax the first shares bought are treated as sold first (FIFO), so the gain is ₹500 and the ₹140 shares stay in your holdings.

For your tax return, use the broker's tax P&L report, which splits realised gains into short-term, long-term, intraday and F&O, rather than the dashboard figure.

Not for individual investors: shares, mutual funds, gold and property are taxed only when you sell or redeem them, so a paper gain carries no tax and becomes taxable only when you sell. The exception is business foreign exchange. Under ICDS VI and section 43AA of the old Income-tax Act, an exchange gain or loss on a foreign currency receivable or payable is taxed at year-end even if it has not been settled.

This rule applies to companies, firms and others on the accrual (mercantile) system; individuals and HUFs who do not need a tax audit, such as most freelancers, are outside it and are taxed on the exchange gain when the money arrives.

For listed shares bought before 1 February 2018, the cost can be taken as the market price on 31 January 2018 if that is higher, so older gains stay protected. These rates apply from 23 July 2024 and continue under the Income-tax Act, 2025, which applies from 1 April 2026 with new section numbers (for example, the old section 112A on equity gains is now section 198). For crypto, see section 115 bbh.

Treat them as information, not money. An unrealised gain is good news only once you lock it in, and an unrealised loss hurts only if you sell, but both should shape what you do before the tax year ends on 31 March.

• Use the ₹1.25 lakh yearly exemption on long-term equity gains by booking some gains each year rather than all at once.
• Book a loss to cut tax: a realised short-term capital loss can be set off against short-term or long-term gains; a long-term loss only against long-term gains.
• Carry forward what you cannot use: capital losses for 8 years and speculative (intraday) losses for 4 years, provided you file your return on time.
• Tax-loss harvesting is allowed: India has no wash-sale rule, but trades must be genuine; pre-arranged or circular trades can be challenged.
• Do not mistake a paper gain for cash, and look at total return, including dividends and interest, not just price movement.

In accounting, companies record unrealised gains in their books when an asset is measured at fair value, and where the gain goes depends on how the asset is classified.

Journal entries for an FVTPL investment:
1. Buy 1,000 shares at ₹100: Debit Investment ₹1,00,000, Credit Bank ₹1,00,000.
2. On 31 March they are worth ₹1,20,000: Debit Investment ₹20,000, Credit Fair value gain (P&L) ₹20,000. This is the unrealised gain.
3. In May they are sold for ₹1,30,000: Debit Bank ₹1,30,000, Credit Investment ₹1,20,000, Credit Gain on sale ₹10,000.
Across the two years, the ₹20,000 unrealised and ₹10,000 realised gains add up to the full ₹30,000 profit.

For an exporter, every unpaid foreign currency invoice carries an unrealised gain or loss, because the rupee value moves until the client pays. Here is one invoice, at illustrative rates.

1. 10 February: you invoice $10,000 at ₹95, and book a receivable of ₹9,50,000.
2. 31 March: the rate is ₹96, so you revalue it to ₹9,60,000 and book a ₹10,000 exchange gain. It is unrealised, but it goes to profit and loss and is taxed in that year under ICDS VI.
3. 20 May: the client pays and you convert at ₹95.50, receiving ₹9,55,000. You book only the ₹5,000 fall since 31 March, as an exchange loss in the new year, which reduces that year's taxable profit.

The journal entries:
10 February: Debit Debtor ₹9,50,000; Credit Export sales ₹9,50,000.
31 March: Debit Debtor ₹10,000; Credit Foreign exchange gain (unrealised) ₹10,000.
20 May: Debit Bank ₹9,55,000 and Foreign exchange loss (realised) ₹5,000; Credit Debtor ₹9,60,000.

Over the invoice's life you gained ₹5,000, but the tax was split across two years. The same revaluation applies to balances held in an eefc account; advances received before you deliver are not revalued, because they are not money owed to you.

Two practical points follow. Export proceeds must be realised within 9 months of the invoice date for services, so a long-unpaid invoice is both a currency and a compliance risk; see realisation and repatriation of export proceeds.

Each payment also needs a FIRA as proof of the realised amount; Xflow, for example, converts at the live mid-market rate and issues an eFIRA within 24 hours for every international transaction. To lock rates for future invoices instead, see fx hedging.