Amendment made by the Finance Bill 2017: Shifting base year from 1981 to 2001 for computation of capital gains (section 55) w.e.f. A.Y. 2018-19.
The finance bill 2017 has amended section 55 of the ACT so as to provide that the cost of acquisition of an asset acquired before 1-4-2001 shall be allowed to be taken as fair market value as on 1-4-2001 or the actual cost of the asset as cost of acquisition and consequently the cost of improvement shall include only those capital expenses which are incurred on or after 1-4-2001.
In the case of long-term capital gains, indexed cost of acquisition and indexed cost of improvement are deducted.
So how to calculate indexed cost of acquisition and indexed cost of improvement. The answer is with the help of cost inflation index. The following table contain cost inflation index up to F.Y. 2016-17.
Cost inflation index (CII) as notified by the central government is as under.
Cost Inflation Index From 1981-82 to 2016-17
How to calculate indexed cost of acquisition?
To calculate indexed cost of acquisition, you have to follow three points as given below.
- Cost of acquisition (Your purchase price of property)
- Cost Inflation Index of Previous Year in Which the Asset is Transferred (When Property Sold Out)
- Cost Inflation Index of the year in which the asset was first held by the assessee or. 1.4.1981 (now 1-4-2001 w.e.f. F.Y. 2017-18) (whichever is later)
Now to calculate indexed cost of acquistion, use the following formula.
Cost of Acquistion (Purchase Price) x CII of the year of transfer / CII of the year acquisition = Indexed cost of acquisition
Example to understand Cost of Inflation Index
- A purchased a plot on 4-1-1978 for Rs.1,00,000/-
- The land was sold by A on 1-6-2016 for Rs.18,00,000/-
- The expenses on transfer were 2% of the sale price
- The market value of the land as on 1-4-1981 was Rs. 1,20,000/-
|Less: Expenses on Transfer||36,000/-|
|Indexed cost of acquisition – 1,20,000 x 1125 / 100 =
|Long-term capital gain||4,14,000/-|