How to calculate long term capital gains with indexation?

Updated: Friday, May 22, 2015, 15:15 [IST]

If you buy a property and sell it after three years at a profit, you would have to pay long term capital gains tax. Say for example you bought a property in 2003 for Rs 20 lakhs and have now sold it for Rs 40 lakhs in 2013, you are to pay a capital gains tax on the profit of Rs 20 lakhs.

The current rate of long term capital gains is 20 per cent with indexation. Therefore, in the above example you do not have to pay 20% of Rs 20 lakhs profit, since you have to take into account indexation as well.

What is capital gains with indexation?

Since inflation has eaten into your profits, the government allows you indexation benefits, which is calculated based on the cost inflation index. The Cost inflation index is released every year sometime in the middle of the year. The table below shows you the cost inflation index. So, in the above example you can see the Indexed Cost of Acquisition = (Actual cost of purchase) x (CII Of Year of Sale)/(CII of Year of Purchase).

Therefore the indexed cost of acquisition in the above case would Rs 20 lakhs x 852/447 = Rs 38,12,080

Therefore you would pay capital gains as follows: Sale price - minus indexed cost of acquisition = Rs 40,00,000 - 38,12,080 = Rs 1,97,820

Therefore the capital gains would be 20 per cent of Rs 1,97,820 = Rs 39,564

Table with cost inflation index since 1981-82

Year Cost Inflation Index

1981-82 100
1982-83 109
1983-84 116
1984-85 133
1985-86 140
1986-87 150
1987-88 161
1988-89 172
1989-90 182
1990-91 199
1991-92 223
1992-93 244
1993-94 259
1994-95 281
1996-97 305
1997-98 331
1998-99 351
1999-2000 389
2000-2001 406
2001-2002 426
2002-2003 447
2003-2004 463
2004-2005 480
2005-2006 497
2006-2007 519
2007-2008 551
2008-2009 582
2009-2010 632
2010-2011 711
2011-2012 785
2012-2013 852