IN CAPITAL GAINS I HAV NOT UNDERSTOOD COST INFLATION INDEX.
PLEASE TELL ME.
AKSHIT MALHOTRA (C.A Final Student) (1337 Points)
04 July 2011IN CAPITAL GAINS I HAV NOT UNDERSTOOD COST INFLATION INDEX.
PLEASE TELL ME.
praveen
(Chartered Accountant)
(6971 Points)
Replied 04 July 2011
CS Bijoy
(Expert)
(6394 Points)
Replied 04 July 2011
It act as a measure of inflation that finds application in tax law, when computing long-term capital gains on sale of assets. Section 48 of the IT Act 1961 defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year. Therefore, if we consider that price of a capital asset has risen in tandem with base price rise, then if one want to sell an asset and replace it, the cost allowed even after indexation will be lesser than the price payable for new asset.