Fintotal News Analysis | Cost Inflation Index for 2013-14 Notified
Cost Inflation Index for 2013-14 Notified
Ruby Jacob, 09 Oct 2013

Cost Inflation for the financial year 2012-13 is 939, as notified Central Board of Direct Taxes (CBDT). Cost inflation index is updated by CBDT every year.

Cost inflation index is useful in computing taxable income from long-term capital gains for individuals and HUFs. The index has base year 1981-82 with value 100 for that year. It has risen by 10% from last years number of 852.

Indexation is a benefit that can reduce long-term capital gains tax by accounting for inflation in the purchase price. By using indexation, the cost of acquisition or improvement of a long-term asset is raised to the rate it would have been in the year of sale while computing long-term capital gains on the transaction.

In brief, this is how indexation works: suppose you bought a flat in June 2000 for Rs 15 lakhs and sell it in June 2013 for Rs 50 lakhs. The indexed cost works out to Rs 35 lakhs whereas the actual cost is Rs 15 lakhs. Capital gains tax rate with indexation benefit is higher but the net tax amount usually turns out to be lower using indexation than without it. Learn how to compute long-term capital gains tax with indexation through this article.

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