how to save income tax through cost inflation index..??
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It is really possible to save substantial amount of income-tax on your long-term capital gains arising out of selling your immovable property, if you take advantage of the cost inflation index concept. However, it is applicable only in long-term capital gains.
Only when you hold your property for more than 36 months and sell it, the profit is known as long-term capital gain. You can save by resorting to the theme of cost inflation index.
The long term capital gains for all types of assets including long-term property gains for all assesses would be computed in the following manner:
1. Cost of acquisition of the asset, whether movable or immovable, is to be multiplied by the cost inflation index of that year in which the asset is transferred. The resulting figure is to be divided by the cost inflation index for the year in which the asset was acquired.
If, the asset was purchased before April 1, 1981, the cost inflation index for the purpose of acquisition is to be taken as the one on April 1, 1981.
2. Any cost incurred on the improvement of an asset is to be similarly adjusted with the help of the cost inflation index, i.e. by multiplying the cost of improvement by the cost inflation index of the year in which the asset is transferred.
It has to be then divided by the cost inflation index for the year in which the asset is transferred, and be divided by the cost inflation index for the year in which the improvement to the asset was done.
The Government has notified the cost inflation index for various financial years from 1981-82 to 2013-2014, the table of cost inflation index for the different financial years is given on next page:
For the financial year, 2013-2014 relevant to AY 2014-2015 the net capital gain tax payable by an assessee in respect of long-term capital gains is calculated on the basis of the above cost inflation index. It may also be remembered that the benefit of cost inflation index is not available for short-term capital gains or losses.
Thus, selling property (land, house, flat, etc.) within a period of less than three years from the date of its purchases is treated as a short-term capital gain or loss in respect of gain from property. Thus, the above cost inflation index will be of no use to a person deriving either a short-term capital gain or loss.
So, too, the benefit of the cost inflation index is not available to non-resident Indians.
Apart from the adjustments arising from the cost inflation index the various expenses incurred on improvements to the asset, and on transfer of the asset for example stamp duty, legal fees payment of brokerage, etc. are deductible from the full value of the sale consideration.
It is the net resultant figure which will be treated as a long-term capital gain or loss chargeable to income-tax in terms of Section 112 of the Income-tax Act.
For the actual year 2014-2015 the tax on long-term capital gains payable is 20 percent. Thus, tax payment in respect of long-term capital gains is much lower than what has been prescribed by the Income-tax Act, if we take into account the impact of the cost inflation index.
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.jpg)
It is really possible to save substantial amount of income-tax on your long-term capital gains arising out of selling your immovable property, if you take advantage of the cost inflation index concept. However, it is applicable only in long-term capital gains.
Only when you hold your property for more than 36 months and sell it, the profit is known as long-term capital gain. You can save by resorting to the theme of cost inflation index.
The long term capital gains for all types of assets including long-term property gains for all assesses would be computed in the following manner:
1. Cost of acquisition of the asset, whether movable or immovable, is to be multiplied by the cost inflation index of that year in which the asset is transferred. The resulting figure is to be divided by the cost inflation index for the year in which the asset was acquired.
If, the asset was purchased before April 1, 1981, the cost inflation index for the purpose of acquisition is to be taken as the one on April 1, 1981.
2. Any cost incurred on the improvement of an asset is to be similarly adjusted with the help of the cost inflation index, i.e. by multiplying the cost of improvement by the cost inflation index of the year in which the asset is transferred.
It has to be then divided by the cost inflation index for the year in which the asset is transferred, and be divided by the cost inflation index for the year in which the improvement to the asset was done.
The Government has notified the cost inflation index for various financial years from 1981-82 to 2013-2014, the table of cost inflation index for the different financial years is given on next page:
For the financial year, 2013-2014 relevant to AY 2014-2015 the net capital gain tax payable by an assessee in respect of long-term capital gains is calculated on the basis of the above cost inflation index. It may also be remembered that the benefit of cost inflation index is not available for short-term capital gains or losses.
Thus, selling property (land, house, flat, etc.) within a period of less than three years from the date of its purchases is treated as a short-term capital gain or loss in respect of gain from property. Thus, the above cost inflation index will be of no use to a person deriving either a short-term capital gain or loss.
So, too, the benefit of the cost inflation index is not available to non-resident Indians.
Apart from the adjustments arising from the cost inflation index the various expenses incurred on improvements to the asset, and on transfer of the asset for example stamp duty, legal fees payment of brokerage, etc. are deductible from the full value of the sale consideration.
It is the net resultant figure which will be treated as a long-term capital gain or loss chargeable to income-tax in terms of Section 112 of the Income-tax Act.
For the actual year 2014-2015 the tax on long-term capital gains payable is 20 percent. Thus, tax payment in respect of long-term capital gains is much lower than what has been prescribed by the Income-tax Act, if we take into account the impact of the cost inflation index.
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