Securing Hannav Ledger...
Securing Hannav Ledger...
Glossary
Indexation adjusts the purchase cost of an asset for inflation using the Cost Inflation Index, reducing taxable capital gains.
Indexation increases your purchase cost on paper for tax purposes, so you pay tax on less profit after accounting for inflation.
Indexed cost = Actual cost × (CII of sale year ÷ CII of purchase year). Applicability narrowed for several asset classes in recent Finance Acts. Debt mutual funds and property transactions require checking current indexation eligibility by purchase date.
Property bought in FY2015 for ₹40 lakh sold in FY2025 for ₹90 lakh. Indexed cost might be ₹58 lakh, reducing taxable LTCG from ₹50 lakh to ₹32 lakh before exemptions.
Indexed Cost = Purchase Cost × (CII of Sale Year ÷ CII of Purchase Year)CBDT notifies CII values annually. The index is used in capital gains computations for eligible assets.
Listed equity LTCG generally uses flat rate without indexation. Indexation historically applied to debt, property, and unlisted assets per specific rules.
If indexed cost exceeds sale price, a capital loss may arise, usable for set-off per IT Act provisions.