What indexation means?

Indexation means adjusting a price, wage, or other value based on the changes in another price or composite indicator of prices. Indexation can be done to adjust for the effects of inflation, cost of living, or input prices over time, or to adjust for different prices and costs in different geographic areas.

What is the formula for indexation?

Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost. For example, if a property purchased in 1991-92 for Rs 20 lakh were to be sold in A.Y. 2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh.

What is the base year for indexation?

The base year is the first year of the cost inflation index and has index value as 100. Index of all other years is compared to the base year to see the increase in inflation percentage.

How is indexation benefit calculated?

The Cost Inflation Index is announced by the Central Board of Direct Taxes (CBDT) and is applied to the capital gains in debt funds. The formula used is: Actual purchase value after indexation = original amount * (CII of the current year/CII of the purchasing year.)

What is indexation in income tax?

Indexation refers to recalculating the purchase price, after adjusting for inflation index, as published by the Income-Tax authorities. Since the purchase price is adjusted for inflation, the capital gain gets reduced. In case of LTCG for non-equity funds, investors can avail the indexation benefit. ThinkStock Photos.

What is index value of property?

Indexed cost = Actual Purchase Price x (CII for the year of sale / CII for the year of purchase) Let me explain this using an example: If a property bought in 1991-1992 for Rs. 20,00,000 were to be sold in F.Y. 2009-2010 for Rs 80,00,000, then the indexed cost would be (632/199) x 20,00,000 = Rs 63.51 lakh.

What is indexation in capital gain?

Indexation refers to recalculating the purchase price, after adjusting for inflation index, as published by the Income-Tax authorities. Since the purchase price is adjusted for inflation, the capital gain gets reduced. In case of LTCG for non-equity funds, investors can avail the indexation benefit.

What is inflation indexation?

Inflation indexing refers to automatic cost-of-living adjustments built into tax provisions to keep pace with inflation.

What is inflation base year?

A base year is used for comparison in the measure of a business activity or economic index. For example, to find the rate of inflation between 2013 and 2018, 2013 is the base year or the first year in the time set.

What is meant by indexation benefit?

How is long-term capital gain indexation calculated?

Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where: Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

What is indexation in capital gains tax?