Cost Inflation Index,Indexation and Long Term Capital Gains

Cost Inflation Index(CII) is a measure of inflation that is used for computing long-term capital gains on sale of capital assets. It comes under Section 48 of the Income-Tax Act.

Cost Inflation Index from Financial Year 1981-82 to Financial Year 2016-17 is given below.

FINANCIALYEAR COST INFLATION INDEX
2016-17 1125
2015-16 1081
2014-15 1024
2013-14 939
2012-13 852
2011-12 785
2010-2011 711
2009-2010 632
2008-2009 582
2007-2008 551
2006-2007 519
2005-2006 497
2004-2005 480
2003-2004 463
2002-2003 447
2001-2002 426
2000-2001 406
1999-2000 389
1998-1999 351
1997-1998 331
1996-1997 305
1995-1996 281
1994-1995 259
1993-1994 244
1992-1993 223
1991-1992 199
1990-1991 182
1989-1990 172
1988-1989 161
1987-1988 150
1986-1987 140
1985-1986 133
1984-1985 125
1983-1984 116
1982-1983 109
1981-1982 100

How is Cost inflation Index Used to calculate Long Term Capital Gains?

Inflation Index is reported in terms of Financial Year, not Assessment Year. In India the year for financial transactions start from 1 st April and ends on 31st March following year. For example For any transaction between 1st April 2010 to 31st Mar 2011 the Indexation for year 2010-2011 i.e 711 would be used.

What are capital assets?

Capital Assets are the assets  which can be held by a person for examples Mutual Funds(Equity, Debt), Real Estate , Shares ,Gold, Fixed Maturity Plan(FMP) , Fixed returns Instruments such as Fixed Deposit.

What are Long Term and Short Term capital assets?

Assets are classified as Long Term or Short Term with reference to the period of holding of the assets till it is transferred. The classification is made on the following basis.

Before July 10, 2014

Nature of Asset Short Term Capital Asset  Long Term Capital Asset
 (i) Shares in a company or any other security listed in a recognised stock exchange in India or a unit of a Unit Trust of India or a unit of a mutual fund specified under section 10(23D). Held for not more than 12 months.  Held for more than 12 months.
 (ii) Assets other than assets mentioned in (i) above.  Held for not more than 36 months. Held for more than 36 months.

After  July 10, 2014

Nature of Asset Short Term Capital Asset  Long Term Capital Asset
 (i) Shares in a company or any other security listed in a recognised stock exchange in India or equity oriented mutual fund Held for not more than 12 months.  Held for more than 12 months.
 (ii) Assets other than assets mentioned in (i) above.  Held for not more than 36 months. Held for more than 36 months.

How does CII help in capital gain/loss computation? 

Cost of acquisition is historical, the concept of indexed cost allows the taxpayer to factor in the impact of inflation on cost. Consequently, a lower amount of capital gains gets to be taxed than if historical cost had been considered in the computations. For example:

If a property is purchased in Financial year 1995-96 for Rs 20 lakh.It is sold  in Financial year(FY) 2011 -12 for Rs 80 lakh.Then Gain would be = Rs 80 lakh – 20 lakh = Rs 60 lakhBut if CII is considered then we need to calculate cost of 20 lakh of 1995-96 in the year 2011-2012From the table Inflation index in year 1995-96 is 281 and year 2011-2012 is 785 So Indexed cost of Rs 20 lakh in the year 2011-2012 is = 20 * (785/281) = 55.871So Long term capital gain = 80-55.871 = 24.128 lakh instead of Rs 60 lakh

In indexation and capital gain parlance, the purchase price is called indexed cost of acquisition

Indexation helps to counter the erosion in the value of the asset over a period of time. Using the inflation index, one needs to increase the purchase price of the asset so that it reflects inflation-adjusted true price in the year in which it is sold.

Can Indexation be used for all asset classes?

No Indexation cannot be used for all classes.

You can use indexation benefits for investments such as : Mutual Funds(Equity, Debt), Real Estate , Shares ,Gold, Fixed Maturity Plan(FMP).

You cannot use indexation benefit for Fixed returns Instruments such as Fixed Deposit, Recurring Deposit, POMIS, NSC, Interest on Saving Bank Account .

Tax liability on capital gain with indexation and without indexation

Before July 10 2014,

For Long term Capital Gains for  debt mutual fund units, the  tax rate are: Either 10% without Indexation OR 20% with Indexation. Holding period is more than 12 months.

For long-term gains on property, gold etc the tax rate is 20% with indexation of cost.

Long term capital gains from equities are not taxed if shares are sold through recognized stock exchange and Securities Transaction Tax, or STT, is paid on the sale.

After July 10 2014,

  • Minimum holding period of units (for other than equity oriented) has been increased from 12 months to 36 months.
  • Long Term Capital Gains (for other than equity oriented) will be taxed at a flat rate of 20% with indexation

Is it necessary to use Indexation?

No. You can choose with indexation or without indexation for every asset sale for the total capital gain that you have only in case of listed shares and mutual fund units. In some cases it may be better to pay just 10%. For instance if you bought a stock 10 years ago, chances are it has multiplied so much that any amount of indexation doesn’t cut much into your profits; you are then better off paying 10% of the unindexed gain rather than 20% of indexed gains. Explained with example later.

Calculation of Tax liability for Different Purchase Dates as in case of Stocks

If you have bought :

  • 1000 units at Rs. 10 on 15 Jan 2006,
  • 1000 more units at Rs. 12  on 1 May 2010
  • 1000 more units at Rs. 16  on 1 Feb 2011

and sold

  • 2500 units at Rs. 18  on 20 Feb 2012,

Each purchase/sale transaction is matched on a First-In-First-Out basis(FIFO). So Three cases arise.

No of Shares Purchase Details Sale Details Indexed Purchase Price/share Indexed Capital Gain Non-Indexed Capital Gain
1000 Rs 10 in 15 Jan 2009 Rs 18 on 20 Feb 2012 10*785/497=15.795 (18-15.795)*1000=2205.23  (18-10)*1000=8000
 1000 Rs. 12  on 1 May 2010 Rs 18 on 20 Feb 2012  12*785/711=13.2489  (18-13.2489) *1000=4751.05 (18-12)*1000=6000
 500 Rs. 16 on 1 Feb 2011 Rs 18 on 20 Feb 2012  16*785/711=17.6653  (18-17.6653) *500=167.37  (18-16)*500=1000
Total 7123.65 15000

Tax liability based on indexation and non-indexation.

Indexed Non-Indexed
Total Capital Gain 7123.65  15000
 Tax % 20%  10%
 Tax to be paid 1424.73  1500

You can choose which one of the two you want, and in this case the indexed option is better – you pay lower taxes.

Non-indexation tax liability better than Indexed tax liability

Using the example given in CapitalMind:How To Calculate Long Term Capital Gains Tax If you have bought :

  • 1000 units at Rs. 10 on 1 Jan 2008,
  • 1000 more units at Rs. 15 on 1 May 2008
  • 1000 more units at Rs. 16 on 1 Dec 2008

and sold

  • 2500 units at 17 on 30 December 2009,

Each purchase/sale transaction is matched on a First-In-First-Out basis(FIFO). So Three cases arise.

No of Shares Purchase Details Sale Details Indexed Purchase Price/share Indexed Capital Gain Non-Indexed Capital Gain
1000 Rs 10 on 1 Jan 2008 Rs 17 on 30 Dec 2009 10* (632/551)=11.470 (17-11.470) *1000=5529.95  (17-10)*1000=7000
 1000 Rs. 15  on 1 May 2008 Rs 17 on 30 Dec 2009  15*632/582=16.2887  (17-16.2887) *1000=711.34 (17-15)*1000=2000
 500 Rs. 16 on 1 Dec 2008 Rs 17 on 30 Dec 2009  16*632/582=17.3745  (17-17.3745) *500=-187.285  (18-17)*500=500
Total 6054.01 9500

Tax liability based on indexation and non-indexation.

Indexed Non-Indexed
Total Capital Gain 6054.01  9500
 Tax % 20%  10%
 Tax to be paid 1210.08  950

In this case the non-indexed option is better – you pay lower taxes.

Can there be long term capital loss after indexation?

Yes there can be long term capital loss. For example if you bought FMP at Rs 10 per unit for 2,00,000 in Sep 2010 and it got matured on Oct 2011 at cost of Rs 10.8177. As shown in table below there is a long term capital loss of Rs 4461.75

 Purchase Details  Sale Details  Indexed Cost/Unit Long Term Capital Loss
20,000 units Rs 10/unit on Sep 2010 Rs 10.8177/unit on Oct 2011  10*785/711=11.0408  (10.8177-11.0408)*20000=-4461.75

If the capital loss cannot be set off against the capital gain of that particular year then you can you need to report in your income tax return and can carry forward for the next eight years.

About CII

When is CII notified?

It is notified by the Central Government every year taking 1981-82 as base year.. For example: Cost Inflation Index for Financial year 2011-12 was notified by CBDT vide circular 35/2011 dated 23.06.2010

How is CII calculated?

Section 48 of the Income-Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year.

FINANCIAL YEAR Real inflation %  75% of Real Inflation(.75 * Real Inflation) Increase=75% of Real Inflation * CII of previous year
Current CII = Previous Year CII + Increase (Earlier column)
1981-1982 100
1982-1983  12% 9% (.75% of 12) 9% of 100 = 9 109 (100+9)
1983-1984  8.563% 6.422% 6.422% of 109 = 7 116
1984-1985  10.344% 7.7586% 7.7586% of 116 = 9 125
1985-1986  8.5333% 6.4% 6.4% of 125 = 8 133
1986-1987  7.0173% 5.263% 5.263 % of 133 = 7 140
1987-1988  9.5237% 7.1428% 7.1428% of 140 = 10 150
1988-1989  9.7777% 7.333% 7.333% of 150 = 11 161
1989-1990  9.1097% 6.8323% 6.8323% of 161 = 11 172
1990-1991  7.7519% 5.8139% 5.8139% of 172 = 10 182
1991-1992  12.4542% 9.340% 9.340% of 182 = 17 199
1992-1993  16.080% 12.060% 12.060% of 199 = 24 223
1993-1994  12.556% 9.4170% 9.4170% of 223 = 21 244
1994-1995  8.1967% 6.1475% 6.1475% of 244 = 15 259
1995-1996  11.325% 8.494% 8.494% of 259 = 22 281
1996-1997  11.388% 8.5409% 8.5409% of 281 = 24 305
1997-1998  10.473% 7.8549% 7.8549% of 305 = 26 331
1998-1999  8.0564% 6.0423% 6.0423% of 331 = 20 351
1999-2000  14.435% 10.826% 10.826% of 351 = 38 389
2000-2001  5.827% 4.370% 4.370% of 389 = 17 406
2001-2002  6.568% 4.926% 4.926% of 406 = 20 426
2002-2003  6.573% 4.929% 4.929% of 426 = 21 447
2003-2004  4.773% 3.579% 3.579% of 447 = 16 463
2004-2005  4.896% 3.6717% 3.6717% of 463 = 17 480
2005-2006  4.7222% 3.5416% 3.5416% of 480 = 17 497
2006-2007  5.902% 4.4265% 4.4265% of 497 = 22 519
2007-2008  8.221% 6.1657% 6.1657% of 519 = 32 551
2008-2009  7.501% 5.6213% 5.6213% of 551 = 31 582
2009-2010  11.455% 8.591% 8.591% of 582 = 50 632
2010-2011  16.485% 12.36% 12.36% of 632 = 79 711
2011-12  13.8772% 10.44% 10.44% of 711 = 74 785
2012-13 11.38% 8.54% 8.54%  of 785=67 852
2013-14 13.62% 10.21% 10.21% of 852= 87 939
2014-15 12.07% 9.05%  9.05% of 939=85 1024
2015-16 7.42% 5.57% 5.57% of 1024=57 1081
2016-17 5.43% 4.07% 4.07% of 1081 =44 1125

Note: While efforts have been made to provide correct information, this is our understanding of the CII and  tax law. Apologies upfront for any mistakes. Please let us know and we will correct.

Related Articles:

Did it help you in understanding CII, calculation of long term capital gains? Have be missed something or skipped or there are some mistakes please let us know.

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67 Responses to Cost Inflation Index,Indexation and Long Term Capital Gains

  1. Mandar says:

    Is cii valid on commercial property like industrial unit.

    • bemoneyaware says:

      Yes CII is valid on commercial property.
      Income from house property in general, is taxable under the head ‘Income from House property’ in the hands of the owner. This applies to both, residential as well as commercial property . The amount of rent received or reasonably expected to be received from such a property which is known as ‘annual value’, is taxable under this head after the deduction of certain expenses.
      or calculating the income taxable under the house property head, the taxation laws allow you two deductions. The first deduction is the standard deduction in respect of repairs, etc., at the flat rate of 30 per cent of the annual val ue calculated as above. The deduction in respect of a let-out commercial property or a residential property which is deemed to have been let-out, is available whether you have actually incurred any expenditure on repairs or not.The other deduction available is in respect of interest on loan taken to purchase or con struct a house property , or even for repair or reconstruction of your existing property .
      Sale proceeds from commercial property are eligible for tax exemption under section 54F

      * Show proof that property is used solely for commercial purposes

      * Use documents like water supply bills, planning permits, rent agreements

  2. Pramod Mohana says:

    I purchased a plot in may 2012 in Rs 7.30 lakh. I sold it in September 2016 in Rs 15.oo lakh. And purchased a under construction house with land for built my own first residential house in Rs 19.00 lakh. New plot have a valid map of new 3 bhk construction. But Only 1 room , toilet and boundary wall is completed.Can I be free for LTCG in this level,

  3. Pramod Mohana says:

    I purchased a plot in may 2012 in Rs 7.30 lakh. I sold it in September 2016 in Rs 15.oo lakh. And purchased a under construction house with land for built my own first residential house in Rs 19.00 lakh. New plot have a valid map of new 3 bhk construction. But Only 1 room , toilet and boundary wall is completed.Can I avail for LTCG in this level,

  4. akshay rathi says:

    Wether i would get benefit of taking cost or fmv in 1981. if i had an ancestral land which was acquired by my ancestor free of cost in 1945 ??

  5. Kshitij says:

    If I am an NRI investing in open-ended Debt Mutual Funds, can I avail indexation benefits after 3 years. On most of the Mutual Fund websites, they have mentioned that for unlisted non-equity funds, the tax applicable is 10% without indexation. Are open-ended Mutual Funds listed funds or unlisted funds and will I be able to avail of indexation benefits?

    • bemoneyaware says:

      Yes Sir you can avail indexation benefits on open Ended Mutual funds after 3 years on Debt Mutual Funds. Open Ended Mutual funds are listed funds.
      Mutual Funds in India are governed by the SEBI (Mutual Fund) Regulations 1996 as amended from time to time. SEBI registered mutual funds are listed and available for trading in the capital market segment of the Exchange. The list of such units listed on the Exchange and available for trading as on date is available at the following URL : http://www.nseindia.com .
      Wanted to bring to your attention the TDS part on redemption of Mutual funds for NRI.
      NRI investment in mutual fund is subject to tax. Considering your status as an NRI, applicable tax on gains will be deducted at the time of your redemption. In any of the above cases if the tax liability on your investment is less than the amount of tax deducted at source then you can file your income tax refund to get refund from income tax department
      capital gains are divided into 2 parts, short term capital gains and long term capital gains.

      Short term capital gains

      Units of Non-equity oriented scheme such as debt and money market mutual funds should be taxed as per your income tax slab, but the TDS is deducted at the highest applicable rate of 30%, irrespective of what tax slab you belong to; while the units of Equity oriented mutual funds are taxed @ 15%.

      Long term capital gains

      Units of Non-equity oriented scheme if listed are taxed at 20% with indexation whichever is lower but the portfolio manager will deduct TDS at flat rate of 20% for NRIs.

      Units of a non-equity oriented scheme if unlisted are taxed at 10% without indexation while Long Term capital gains on units of an equity oriented scheme are exempt from tax as Securities Transaction Tax is payable on redemption.

  6. Rohit says:

    While calculating indexed cost of purchase of property in can I add MSEB Meter
    charges to the cost of purchase?

  7. Laxman Saple says:

    I have purchase the property in 2012 for 3900000/- and sold the same in 2014 for 5650000/- against this I have repaid my loan of 2500000/- and remaining amount I purchase another property. Should I need to pay capital gain tax or not??

  8. K Narayanan says:

    I purchased a flat from Tamilnadu housing board by hire purchase scheme in May, 1977 by paying monthly instalment of ₹.252/ – for a total cost of ₹.32150/-. The said flat was registered for the said amount in May 1999. Now I am intend to sell the flat for ₹. 80,00,000/-. Kindly let me know how much is the Capital Gain and tax there on.

  9. Monish jain says:

    is indexation benefit available on zero coupon bonds

    • bemoneyaware says:

      As there are no coupon payment in zero coupon bonds, these bonds are taxed under the head income from capital gains. Long term capital gains attract indexation benefits, i.e, the tax rate is 20% with indexation and 10% without indexation. In case of short term capital gains it will be included in the investor’s total income and tax rate will be as per the tax slab in which the investor falls.

      Illustration :

      For example, 2 year zero-coupon bonds with a face value of Rs. 1000/- purchased for Rs 910/- or a 2 year 5% annual coupon bond trading at its face value of Rs. 1000/-. If the investor bought the zero-coupon bond for Rs. 910/- would receive Rs. 1,000/- at maturity, which is a gain of 9.9% (90/910). Similarly, if the investor bought a coupon bond, would receive two coupon payments of Rs. 50/- each during the year with a total of Rs. 100/-, which represents a 10% gain(100/1000). Taxation for zero coupon bonds without indexation would be @10% i.e. Rs 9/- whereas for coupon [email protected]% i.e. Rs 30/- (assuming the investor falls under the highest tax bracket).

      So Post Tax return (2 Year) on Zero-coupon Bond: 8.9% and
      Coupon-paying Bond: 7%

  10. Darshan Mehta says:

    Calculation of Tax liability for Different Purchase Dates as in case of Stocks

    If you have bought :

    1000 units at Rs. 10 on 15 Jan 2006,
    1000 more units at Rs. 12 on 1 May 2010
    1000 more units at Rs. 16 on 1 Feb 2011
    and sold

    2500 units at Rs. 18 on 20 Feb 2012,
    Each purchase/sale transaction is matched on a First-In-First-Out basis(FIFO). So Three cases arise.

    No of Shares Purchase Details Sale Details Indexed Purchase Price/share Indexed Capital Gain Non-Indexed Capital Gain
    1000 Rs 10 in 15 Jan 2009 Rs 18 on 20 Feb 2012 10*785/497=15.795 (18-15.795)*1000=2205.23 (18-10)*1000=8000
    1000 Rs. 12 on 1 May 2010 Rs 18 on 20 Feb 2012 12*785/711=13.2489 (18-13.2489) *1000=4751.05 (18-12)*1000=6000
    500 Rs. 16 on 1 Feb 2011 Rs 18 on 20 Feb 2012 16*785/711=17.6653 (18-17.6653) *500=167.37 (18-16)*500=1000
    Total

    In this case study u were writing purchase unit is year of 2006 and at that time u wrote year of 2009 why Can YOU clarify.

  11. RAMESH H RATHOD says:

    I have purchased some shares in 2007 wherein indexation cost taken or not thereafter sale of shares

    • bemoneyaware says:

      No tax on long-term capital gains from sale of listed shares.
      As you have sold the shares after holding for more than 12 months from when you acquired them, the gains, if any, from the sale will be termed as long-term capital gains (LTCG). The LTCG from sale of listed shares liable to STT can be claimed as exempt from tax under section 10(38) of the Income-tax Act, 1961. Further, the amount of exemption should be disclosed in your personal tax return to be disclosure compliant.

  12. mahantesh naganure says:

    Hi Team, I have purchased A property in 2006 for 16.7 Lakhs and then took 26 Lakhs top up loan on A for refurbishing A and other flat B related work. Now I am planning to sell property A.. Is it possible to use capital gain amount to replay TopUp loan on property A. Kindly reply quickly.

    Regards
    Mahantesh

  13. navi reddi says:

    hi bemoney aware… i bought this land of 1402 sq.yrds in hyderabad on 5th march 2007 for 28,04,000/- rs. which i sold on 26th october 2012 for an amount of 42,06,000/-….i have also payed stamp duty of 2,65,940/- for transfer of property …can u pls let me know what capital gains i would have had to pay till that date of october 2012, and also the amount of fine i would have to pay for late payment of my capital gains till this present date of january 2016 if any at all….thanks much…navin reddi

  14. Srinivas says:

    Sir.
    I bought property in Banglore for 25L in Jun 2011 (index 785).selling in Jan 16.. (index 1081).so 25*1081/785=34.42L.. the buyer is maki g an agreement for 40 L to ge a loan..but sale deed is for 38 L. Is this ok? Also outstanding loan payment can it be deducted fm the sale..in the above case what is my cap gain? How to avoid? Pl reply..

  15. naman says:

    Thanks for providing me a detailed info. About CII.

  16. Sachin says:

    Nice article…I have following query too…
    My grandparents purchased a property in the year 1966 for Rs. 9050 (nine thousand and fifty rupee only)and today we sold it around for Rs. 50,00,000 (Fifty Lac only). While calculating the capital gains, I found “Improvement” clause where we can claim an amount spend on property to maintain or construct during the period of we had property.
    Question – how it can be proved whether we have spent the amount? As it was my grandparents maintained that property so I am neither aware or have any proofs to show if 1 lacs or 10 lacs were spent in which year. How can I show it?

    Ques 2. Property sold is 50 lacs, and shows a capital gain of 5 lacs then what is my liability in following cases-:
    a. new property purchase (resident sold and purchased) of 40 lacs.
    b. new property purchased of 50 lacs or above.

    thanks

  17. DESIKAN says:

    I am planning to sell my land and want to invest the same in another land near to my house to avoid LTCG. Can I claim exemption by investing in another vacant land or should the CG be invested only in residential property to claim exemption. Pls clarify.

    • bemoneyaware says:

      laim of exemption u/s 54 would be available on the investment made by you on the land provided you also construct a residential house within the time stipulated in the said section.

      You may also note that section 54 would require an investment in capital gain account scheme if the reinvestment is not made before the time stipulated in filing the return u/s 139(1).
      If you are using your entire sale proceeds to buy a house property you may end up paying no tax on your gains when – You satisfy all these conditions

      (a) You purchase ONE house within 1 yr before date of transfer or 2 yrs after, or construct ONE house within 3 yrs after date the transfer.

      (b) You do not sell this house withing 3 yrs of purchase or construction

      (c) This new house purchased or constructed must be situated in India

      (d) You should not own more than 1 residential house (other than the new one) on the date of transfer

      (e) You do not purchase within a period of 2 yrs after such date or construct within a period of 3 years after such date any residential house (other than the new one).

      When you satisfy these conditions, and invest entire sale proceeds towards the new house – you won’t pay any tax on your gains. However, if you invest a portion of the sale proceeds, the exemption will be the proportion of the invested amount to the sale price or exemption = cost of new house x capital gains/net consideration.

  18. Bhargav, S says:

    In this example, If P and Q are in US $.
    DO i use Rs conversion rate of year A for P and rate of year B for Q.
    Or should i use rate of conversion of date of sale for both P and Q.

    Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
    Sale Year = B, Selling price = Q, CII for sale year = Y
    Indexed Purchase price = P x (Y/X) = R
    Long term capital gain = Q – R = S
    Income tax on capital gain = S x 20%

    • Neela says:

      I have short term capital loss from Debt funds. Should I use item 5 under short term capital gains section of Schedule CG to fillin the details?

  19. balu says:

    money retained abroad and used for investment in foreign shares and mutual fundsin foreign currency and brought to India after few years. Due to currency fluctuation there is a considerable increase in the value ofmoney brought in. is the gain long term capital gain? Can I claim indexation benefit on the same?

  20. Ram says:

    Dear Sir,

    I had Purchased certain no of Listed Company shares during 1993 thro IPO.
    I have sold a part of my holding in Stock Exchange during this FY . IPO value offered to the Public and Purchased by me at that rate was Rs130. Current value is around 700.
    How much Capital Gains do I need to pay ?

    Grateful for your reply

    Thanks
    Ram

    • bemoneyaware says:

      Long term capital gains from equities are not taxed if shares are sold through recognized stock exchange and Securities Transaction Tax, or STT, is paid on the sale.

      You show the profit :(Selling price-cost price* * price of share as exempt income in ITR.

  21. Ram says:

    Dear Sir,

    I had Purchased certain amount of Listed Company shares during 1993 thro IPO.
    I have sold a part of my holding in Stock Exchange. IPO value offered to the Public and Purchased by me at that rate was Rs130. Current value is around 700.
    How much Capital Gains do I need to pay ?

    Grateful for your reply

    Thanks
    Ram

  22. Ranjan says:

    I purchased a flat in Sept 2010. It took more than 3 years for the builder to construct the building. I paid multiple demands from the builder over the period of 3 years (through bank loan). The flat was finally handed over in Feb 2014.
    For the indexation purpose, what would be the ‘property acquired year’? 2010 – when I did the agreement with the builder?
    2014 – when I got the possession?
    Or should every instalment be considered separately and the year of instalment be considered?

    Please advise.

    • bemoneyaware says:

      There are debates on it.

      Short ans:
      If the Allotment Letter specifically mentioned the Flat No. allotted to you, that means that you have got a right over that flat.

      And therefore, in this case – the Date of Acquisition would be considered as the Date on which the Allotment Letter was given to you.

      Long ans:
      ref:Taxfull
      Tax authorities in India are taking a position on the basis of various judgments, that the facts of the case are given a priority to consider the availment. For instance, to qualify the investment in case of builder flats, the crucial date is the date of allotment of the residential flat and the payment of installment is a follow up action.
      Allotment is a sufficient compliance for getting the benefits, even if the taxpayer has not paid all installments due under the said scheme. The provisions of the section are a beneficial provision for promoting the construction of residential house. Thus, the date of issue of an allotment letter gives a right to the taxpayer (Intended buyer) to obtain conveyance on the said flat so that it becomes an asset within the purview of the Income-tax Act. The date of acquisition of the said flat shall be the date on which the allotment letter is issued to the intended buyer.

      In the present case the gains will be treated as long term capital gain and you can avail indexation benefit.

      The Central Board of Direct Taxes (CBDT) has also clarified that to qualify as an investment for construction under section 54F the crucial date is the date of allotment of flat by an institution and payment of installments was only a follow-up action and taking possession of the flat is only a formality.

  23. Prashad says:

    Hi, Do I have a choice to calculate long term capital gain for my Real Estate property with or without indexation that was purchased some 16 years back and plan to sell in coming months after August 2015 ? Your article was very informative but at the end I am a bit confused . For my case, I calculated and the amount was around 4 lakhs without indexation and around 8.5 Lakhs with indexation. At some point in the above article, it is mentioned mentioned “For some asset classes where you have the choice of using Indexation or not Such as: Mutual Funds(Equity, Debt), Real Estate , Shares ,Gold, Fixed Maturity Plan(FMP).” But after few lines, it is also mentioned “For long-term gains on property, gold etc the tax rate is 20% with indexation of cost.” So, I am confused if I have choice to calculate with or without Indexation for my Real Estate property . Thanks

    • bemoneyaware says:

      For long-term gains on property, gold etc the tax rate is 20% with indexation of cost.

      Ok we can see where the confusion is.
      Choosing to go for indexation was only for Debt Mutual Funds and FMP. Have corrected it.

      For property it was always 20% with indexation.

  24. Amit says:

    Hello,
    Thank you very much for this article. I have been trying to understand indexation and its calculations for a few years but could never understand it and hence used to always declare my Debt mutual fund investments at 10% tax without indexations since i always thought it to be complicated.
    To my surprise after reading this article, I finally understood the meaning and also found that the gain on my mutual funds after indexation is actually a loss and hence i do not have to pay any taxes on them. Thank you very much for the detailed article and the calculation.

  25. Gargi says:

    Hi Kriti,
    I purchased
    100 units on 1 April 2012 @ 10/-
    100 units on 1 April 2013 @ 20/-

    I sold
    200 units on 30 April 2014 @ 30/-

    Now in this scenario, I will be filing the Tax Returns in Assessment Year 2015-2016.
    Now, Since the Rule changed on July10,2014 , So Will the Capital Gain be considered as Long Term Capital Gain or Short Term Capital Gain?
    Will I get the option to have 10% without Indexation since the shares were sold before July10,2014??

    • bemoneyaware says:

      Sir rules have not changed for equity or shares.

      Shares in a company or any other security listed in a recognised stock exchange in India or a unit of a Unit Trust of India or a unit of a mutual fund specified under section 10(23D) Held for more than 12 months are still long term capital gains.
      And Long term capital gains are exempt from tax so you have to file them in Exempt Schedule as explained in our article Filling ITR-1 : Bank Details, Exempt Income, TDS Details

      • Gargi says:

        Hi,
        I have Long Term Capital Gain and Dividend Income from ESPP ( Employee Stock Purchase Plan) from a US based company.
        While filing ITR-2 in what section of Schedule CG should I mention the details of Capital Gain to get the LTCG without Indexation ( 10% tax) ? I am not able to find that section.

        • bemoneyaware says:

          Our article Employee Stock Purchase Plan or ESPP explains in detail
          it is Long term gain. Income tax would be at rate of 20% + education cess with indexation benefit.

          See long term gain and income tax computation method below:

          Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
          Sale Year = B, Selling price = Q, CII for sale year = Y
          Indexed Purchase price = P x (Y/X) = R
          Long term capital gain = Q – R = S
          Income tax on capital gain = S x 20%

          In case its not long term gain but a short term gain, whole gains (selling price – buying price) would be taxable as per your tax slab rates.

          You will have to fill these details in ‘CG-OS’ sheet in ITR-2 excel file. ‘Full value of consideration’ would have selling price. ‘Cost of acquisition’ would have purchase cost. If any additional amount was spent on transfer/selling like brokerage etc, that can be reduced under ‘Expenditure on transfer’ field.

          Please note that in case this is a long term gain, you can save income tax by investing into capital gain bonds u/s 54EC or into residential house property u/s 54F.

          • Bhargav, S says:

            In this example, If P and Q are in US $.
            DO i use Rs conversion rate of year A for P and rate of year B for Q.
            Or should i use rate of conversion of date of sale for both P and Q.

            Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
            Sale Year = B, Selling price = Q, CII for sale year = Y
            Indexed Purchase price = P x (Y/X) = R
            Long term capital gain = Q – R = S
            Income tax on capital gain = S x 20%

        • bemoneyaware says:

          Did you get any document from your US broker ?

  26. Bhuvan Kumar says:

    We purchased a property in the year 1966 for Rs. 6650 (six thousand six hundred and fifty only)and today we are about to sell it for Rs. 90,00,000 (ninety Lac only) how will the capital gains be calculated in this case.

    • Kirti says:

      If the property has been acquired prior to 1 April 1981, the acquisition cost will be the cost incurred by the original owner or the fair market value of the property as on 1 April 1981, whichever is higher,
      .How to find out the fair market value as on 1.4.1981
      well in that case the circle rate declared by local municipal authorites of that area where that land belongs would suffice or the recent sale of any property in that region with in that given period of time would help in assessing the market value of that property
      If Municipal authorities are not in a position to give circle rate as on 1.4.1981 Then You shall need to hire a property valuer to do the job.

      • ABCDas says:

        Under pressure from my co-owners I sold my 17% share in ancestral commercial property. To save on LTCG why can’t I again buy a commercial property. I understand only one residential property can be bought that too if I don’t own another. can I wait to invest in any REIT which is likely in this financial year. I have already deposited in bank FD but not under sec 54. Please guide me

  27. Sadanand V Kulkarni says:

    1. I would like to whether Cost Inflation Index for FY 15-16 has been declared. If not, when it is likely to be declared?
    2. If a property is sold in FY 15-16, then how the capital gain tax will be calculated as the CII is not declared.

  28. Ajay says:

    hi,
    Is the option for paying 10% tax on LTCG from property without indextation still allowed for FY 2015-16.

    • Kirti says:

      Ajay,
      Short ans: Long Term Capital Gains (for other than equity oriented) will be taxed at a flat rate of 20% with indexation. 10% tax was not on property but for debt Mutual Funds or FMP etc.

      Long answer:
      Before July 10 2014,
      For Long term Capital Gains for debt mutual fund units, the tax rate are: Either 10% without Indexation OR 20% with Indexation. Holding period is more than 12 months.
      For long-term gains on property, gold etc the tax rate is 20% with indexation of cost.
      Long term capital gains from equities are not taxed if shares are sold through recognized stock exchange and Securities Transaction Tax, or STT, is paid on the sale.

      After July 10 2014,
      Minimum holding period of units (for other than equity oriented) has been increased from 12 months to 36 months.
      Long Term Capital Gains (for other than equity oriented) will be taxed at a flat rate of 20% with indexation

      • Gargi says:

        Hi Kriti,
        I purchased
        100 units on 1 April 2012 @ 10/-
        100 units on 1 April 2013 @ 20/-

        I sold
        200 units on 30 April 2014 @ 30/-

        Now in this scenario, I will be filing the Tax Returns in Assessment Year 2015-2016.
        Now, Since the Rule changed on July10,2014 , So Will the Capital Gain be considered as Long Term Capital Gain or Short Term Capital Gain?
        Will I get the option to have 10% without Indexation since the shares were sold before July10,2014??

  29. SRS says:

    IS THERE POSSIBILITY REINVEST THE LTCG EARNED OUT OF SALE DEAL OF LAND INTO NEW PURCHASE OF APPARTMENT., WITH IN 3 MONTHS OF THE SALE LAND – ENTER INTO AGRREMENT FOR APPRTMENT WHICH WILL READY FOR POCESSION IN THREE YEARS LATTER.

    OTHER POINT WHTHER DAUGHTER/HUSBAND / SON-IN-LAW CAN JOIN AS CO-INVESTER WITH THE MAIN INVESTOR WHO HAS PALN TO BY AN APPARTMENT.

    JUST FOR THE SAKE REGISTRATIONS THE NAMES OF THE WIFE INSERTED INTO OR INCLDED WITH THE 1ST HOLDER WHILE PURCHASING THE FIRST APPARTMENT JUST AS JOINT SECOND HOLDER BUT THEY HAD NOT PUT ANY MONEY ON IT, ARE THEY BE CONSIDERED TO BE PERSON HAVING ALREADY HOUSE MORE THAN ONE ARE SO., FOR LTCG CONSIDERTIONS UNDER RULE 54F…

    LAND SALE DEED FOR RS. 63 LACS, WHERE AS APPARTMENT COST COMES 108 LACS.
    AMT IN EXCESS OF 63 LACS IS OUT SAVINGS, EANRED INCOME AND THRU ANY LAONS.

    IS THERE ANY TAX LIABILITY ON THIS IF SO TO WHAT EXTENT, HOW TO SAVE THIS TAX LEGALLY

  30. ARVIND PATEL says:

    1DOES SWITCH OUT IN TO OTHER SCHEMME OF SAME FUND WITHIN 1 YR.GET SHORT TERM GAIN? AND LONG TERM GAIN AFTER 1 YEAR?

    • Kirti says:

      Moving either the whole or part of the investment from one mutual fund scheme to another mutual fund scheme within the fund family is called as Switching of Mutual Funds. For example moving some or all your units from HDFC Top 200 to HDFC Balanced Fund would be considered as switching. A switch from one fund (source) to another fund (target) is actually a combination of two transactions:

      Redemption of units in the source or the scheme from where it is switched out
      Fresh purchase of units in the target or the scheme into which it is being switched
      Thus one will be liable for any applicable entry load or exit load. For this option some fund may levy a switching fee.

      Yes there are tax repercussions while switching from one mutual fund scheme to another depending on whether switch is from Equity Fund to Debt Fund or from Debt Fund to Equity Fund.

      Switching from Equity Fund to Debt Fund

      Appropriate Securities Transaction Tax(STT) is levied at the time of the switch on the Equity Fund investment. (STT is deducted at the time of we redeeming the equity fun so what we receive is the amount NET of STT.)
      If the equity fund investment is held for less than a year, short term capital gains would be applicable.
      If the equity fund investment is held for more than a year, it qualifies as long term capital gains. As securities transaction tax(STT), long term capital gains on the equity asset class is waived off over the mutual fund units.
      Switching from Debt Fund to Equity Fund

      No securities transaction tax is payable at the time of redemption of the debt fund units.
      Meaning of Short term capital gains(STCG) and long term capital gains(LTCG) is the same i.e holding period of less than one year is short term gain while holding period of more than one year is long term gain.
      STCG on a debt instrument gets added directly to your overall taxable income in the financial year and LTCG is currently taxed at 10% with indexation plus applicable surcharge.
      Short term capital gains are not deducted at source (like TDS on our salary). We need to show the transaction details, the actual STCG made, as a part of Income Tax Returns and pay appropriate tax. (One can deduct STT from Short term gain earned)

      For example, you invested Rs 1,00,000 in equity fund on June 1, 2013 and when you have 20% gain you redeem or transfer the Rs 1,20,000. The securities transaction tax is 0.125% on the transacted amount; which works out to 0.125%*120000, i.e. Rs.150.

      If the investment is held for less than a year say you sell on Oct 2013. The tax liability would be: 150 (STT = .125% of 20,000 ) + 3000 (STCG = 15% of 20,000)+ 90(Surcharge plus Education Cess : 3% of 15% of 20,000 ) which is: Rs 3240.

      If the investment is held for more than a year say you switch on 10-Aug-2014. As you have held equity investment for one year, it is long term capital gains. All that needs to be paid is the STT, which is Rs. 150 (STT = .125% of 20,000 )

      When you file the IT Returns in July 2014 (for the financial year 1 April 2013 to 31 March 2014) , for redemption from equity fund in Oct 2013 you will have to shell out an additional Rs 3090 as tax (because that STT of Rs. 150 was already deducted at the time of redemption).

      • jiten says:

        Hi Kirti
        Two queries
        1. when we switch from a ” dividend option’ investment into the growth option of the same fund and scheme, from which date is the angle of taxation accounted for ?
        2. From FY 15-16 onwards, for LTCG or > 36 Months in FMP”s, is 20% with idnexation the ONLY option ? or 10% with indexation is there too.
        Thanks
        Jiten

        • Kirti says:

          Sir,
          As the Dividend and Growth options are treated as two different schemes, with different NAVs, a change from Dividend to Growth would be a Switch i.e. redemption from one scheme ex Dividend Payout and a purchase into the other ex Growth. For this change one needs to submit a switch request form.
          Taxation for scheme you switched from ex: dividend option would consider time period from date you invested in Dividend option and date you switched.
          Taxation for scheme you switched to ex:Growth option purchase price would be date of switching.
          Our article Switching of Mutual Funds covers switching in detail.
          From 11 Jul 2014, The Long Term Capital Gain tax rate on non-equity funds is 20% (with Indexation benefit). 10% indexation benefit is not available.
          So if you sell your non equity funds which include FMS before 36 months, the gains will be added to the income and taxed as per your tax slab. This means that for corporates, the tax rate will be 30% plus surcharge and cess. If you sell after 36 months, you will have to pay tax at the rate of 20% after indexation.

  31. rao says:

    u have mentioned in a case worked out in the yr 2011-12 that capital gain tax is 20% with indexation and 10%
    without indexation.Does the % holds good for yr 2014-15 or is there any change?

    • Kirti says:

      Sir there has been change after July 10, 2014.
      From Jul 10,2014
      Minimum holding period of units (for other than equity oriented) has been increased from 12 months to 36 months.
      Long Term Capital Gains (for other than equity oriented) will be taxed at a flat rate of 20% with indexation, whereas earlier it was minimum of 10% (w/o indexation) and 20% (with indexation).

      From Oct 1 2014, From Dividend Distribution tax (for other than equity oriented) has to be calculated on Gross distributed income, whereas, earlier it was calculated on Net distributed income.

  32. […] cost of improvement if indexation is applied will be indexed cost of improvement. Our post Cost Inflation Index,Indexation and Long Term Capital Gains deals with Cost Inflation Indexation in details including details on when the indexation might not […]

  33. Cassidy says:

    Its 10% without Indexation and 20% with Indexation…there are atleast two places in the articles where u have written the opposite…
    Headings:
    a) Tax liability on capital gain with indexation and without indexation
    b) Calculation of Tax liability for Different Purchase Dates as in case of Stocks

  34. Shirish says:

    The article mentions that there is a CG tax on LTCG on listed shares and units of MF. This is not correct. Currently, the LTCG tax on shares and units of MF is exempt.
    Ragards,

  35. Paresh says:

    Good Info..
    Little bit surprised as there was no mention of 54EC capital gain Bonds offered by companies like NHAI or REC…

    • admin says:

      Bang on Paresh. Yes we did not talk about 54EC capital gain as we wanted to do a full article on that. But you are right we should have atleast mention it. Shall do it at earliest.

  36. Ram says:

    Nice article. Helped me understand indexation

    • admin says:

      Thanks a lot Ram. We are happy to know that our article helped you, comments like these makes blogging worthwhile!

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