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    Feb 10, 2017

    Long Term Capital Gin Calculator After Change in Base Year

    Finance Minister Mr. Arun Jaitley made significant announcement in terms of long term capital gain taxation and indexation which is base year as base year for indexation is changed from 1981-82 to 2001-02.

    There will be impact on changing the base year 2001-02 for calculating the long term capital gain. Let try to understand it with examples and calculator.


    How indexation helps

    When someone purchase an asset, normally the value of asset increases year after year. Some part of this increase value is because of inflation.

    Like we purchase a Kgs of Apple for Rs. 50 today and the same apple for Rs. 60 after an year. The value of Rs. 10 is because of inflation as apples are same.

    Same as apples a part of increase of value of asset is because of inflation. So as per income tax rule, for the value increase due to inflation, you needn’t to pay capital gain for it.

    CBDT issued cost inflation index every year for calculation of long term capital gain.

    The indexation benefit is only available for long term capital gain and not for short term capital gain.
    Long Term Capital Gin Calculator After Change in Base Year

    How change in base year impact you.


    Long Term Capital Gains = Sales price – Indexed cost of acquisition (and improvement)
    Sales price is easy to figure out. After all, you just sold the asset.

    For the Indexed Cost of Acquisition, you need to find out the Cost of Acquisition and inflate it to find Indexed Cost of Acquisition.

    As per Section 55 of the Income Tax Act,
    Cost of acquisition, where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee;   

    April 1, 1981 to be replaced with April 1, 2001 (from April 1, 2018 as per the budget announcement)
    So, as per the existing law, if you acquired a capital asset before 1981, it is your discretion to choose the cost of acquisition. You can choose it to be the actual cost or the Fair Market Value as on April 1, 1981.

    Of course, you will pick up the higher one. Sometimes, it is not possible to find the actual cost of asset especially for those properties that you have inherited.  In such cases, you have to go for FMV.

    As per Section 48 of the Income Tax Act,
    “indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981*, whichever is later;

    April 1, 1981 to be replaced with April 1, 2001 (from April 1, 2018 as per the budget announcement)
    Now that the base year has been changed from 1981 to 2001, you will have to apply CII value for FY 2001-2002 (from next year). CII for 1992 will not exist for taxation purposes



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