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Indexed cost of acquisition or improvement

Indexed cost of acquisition or improvement plays an important role while calculating Capital gains Tax on long-term capital assets. For the purpose of hassle-free calculation of the indexed cost of acquisition using the Tax2Win calculator -Indexed cost of acquisition or improvement.

What is the Indexed Cost of acquisition or improvement?

Indexed cost can simply mean inflated cost. Indexed cost of acquisition means the cost of acquisition is to be increased by the inflation index factors known as cost inflation index numbers.

What is the Indexed Cost of acquisition or improvement calculator?

The indexed cost of acquisition or improvement calculator is a handy tool to calculate the increased cost of acquisition for the calculation of long-term capital gain tax. Indexed cost of acquisition or improvement plays an important role while calculating Capital gains Tax on long-term capital assets.

How to Calculate Indexed Cost of Acquisition or improvement?

To calculate the indexed cost of acquisition, one needs the year of acquisition and the actual cost of acquisition; this can be calculated as follows: -

Indexed cost of acquisition
= Cost of acquisition X (CII of the year of transfer / CII of the year of acquisition or FY 2001-02, whichever is later)

Indexed cost of improvement
= Cost of improvement X (CII of the year of transfer / ClI of the year of improvement or FY 2001-02, whichever is later)

*CII means cost inflation index The Income Tax Department notifies CII for each financial year.

Benefits of Using Indexed Cost of Acquisition or Improvement Calculator

The calculation provided by the calculator can leave assessees with a surplus after-tax payments on long-term profits, which they can then invest in other financial assets with criteria for Using Indexed Cost of acquisition or Improvement Calculator.

Criteria for Using Indexed Cost of Acquisition or Improvement Calculator

INDEX COST OF ACQUISITION is a benefit provided to the assessee on gains on long-term capital assets. By indexing the cost, inflation adjustment is done by which cost is increased, which results in lower capital gain tax. To avail of this reduction in taxes, the capital assets on which the capital gains are taxed should be held for more than 36 months with the assessee; however, in certain cases, this period of holding is different from 36 months, like in the case of unlisted equity shares or land and building it is 24 months while in case of Listed equity shares, it is 12 months only. Still, these are not indexed for the calculation of section 112A. So those individuals who fulfill these criteria can use this calculator.



What are the various cost inflation indexes in force?

The cost inflation index is as follows: -
*If the asset is acquired before 01/04/2001, the assessee can take the acquisition cost as fair market value as on April 1, 2001, or its actual cost.
Cost Inflation Index numbers from FY 2001-02 to date:

Sl. No. Financial Year Cost Inflation Index
1 2001-02 100
2 2002-03 105
3 2003-04 109
4 2004-05 113
5 2005-06 117
6 2006-07 122
7 2007-08 129
8 2008-09 137
9 2009-10 148
10 2010-11 167
11 2011-12 184
12 2012-13 200
13 2013-14 220
14 2014-15 240
15 2015-16 254
16 2016-17 264
17 2017-18 272
18 2018-19 280
19 2019-20 289
20 2020-21 301
21 2021-22 317
22 2022-23 331
23 2023-24 348

Example of calculation of Indexed Cost of acquisition?

For example, Mr. A purchased a capital asset on 15.2.2015 for Rs. 15 lakh and sold the same on 15.9.2022 for 22 lakh. Now, let’s Calculate the indexed cost of capital asset-
The indexed cost of acquisition = Cost of acquisition
X (CII of the year of transfer / CII of the year of acquisition)
= 15,00,000 X 331 / 254
= 1,95,000


What is the benefit of the Indexed Cost of acquisition?

When a Capital asset qualifies as a long-term capital asset based on its holding period, a benefit of indexed acquisition cost will be provided while calculating capital gain. This indexed cost helps in increasing the cost deductible from the sale consideration, which in turn reduces the capital gain and results in a lower capital gain tax

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