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How to calculate long term capital gains with indexation?

How to calculate long term capital gains with indexation?
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

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