Report No. PF / HT / 070708 / 458
07th July’ 2008
Computing of Indexation
We have in the last coverage learnt what capital
year to such previous year, by notification in the official
gains are. As we at Karvy feel that there is no limit
gazette, specified in this behalf. Mode a) Assets acquired
for knowledge, we are making a small attempt in
directly by the assessee himself: The cost of acquisition
making you more informed about the indexation
shall be the amount which the assessee has paid to
provisions under capital gains chapter.
acquire that asset. Indexation in case will be done as:
Indexed cost of acquisition means an amount which
Cost of acquisition
bears to the cost of acquisition the same proportion
the year of acquisition.
X CII of the year of transfer/ CII of
as cost inflation index for the year in which the
asset is transferred bears to the cost inflation index
Mode b) Asset acquired from the previous owner n any
for the first year in which the asset was held by the
mode given u/s 49(1): In this case, the cost of
assessee or for the year beginning on 1-4-1981
acquisition is taken as the cost to the previous owner
which ever is later
and it is this cost which will have to be indexed. For the
Cost Inflation Index, in relation to a previous year,
purpose of indexation the year in which the asset was
means such index as the central government may,
first held by the assessee (not the previous owner) is to
having regard to 75% of a average rise in the
be considered. The indexation will be done as under:
consumer price index for urban non-manual
employees for the immediately preceding previous
For more information contact:
Pradeep Kumar S.
Murugavel.A
Email: pradeep.s@karvy.com
amurugavel@karvy.com
: +91 40 23312454 Ext: 304
Cost of acquisition to the previous owner X CII of
the year of transfer/ CII of the year in which the
asset is first held by the assessee.
currency by a non resident.
• Indexed cost of improvement: Indexed cost of
improvement means an amount which bears to
the cost of improvement the same portion as
When is indexed cost not considered?
cost inflation index for the year in which the
• Transfer of bonds and debentures other than
capital
indexed
bonds
issued
by
the
government.
• Transfer of shares or debentures acquired by
asset is transferred bears to the cost inflation
index for the year in which the improvement to
asset took place.
• Any expense or improvement before 1-4-1981 is
to be completely ignored. Therefore, cost of
a non resident in foreign currency in an
improvement only after 1-4-198, by the assessee
Indian company.
should be indexed. However, if the asset is
• Transfer of undertaking or division in a
slump sale.
• Transfer of units of Unit Trust of India or
Mutual
Fund
covered
u/s
10(23D)
purchased in foreign currency by overseas
financial
organization
also
known
as
offshore funds.
• Transfer of foreign exchange asset by a non
resident Indian.
• Transfer of securities by FII.
acquired by the assessee from the previous
owner
in
any
mode
given
u/s
49
(1), the expenses on improvement incurred by
the previous owner after 1-4-1981 will also
have to indexed.
• Capital expenditure on improvement after 1-41981 X CII of year of transfer/CII of the year in
which the improvement was made by the
assessee or previous owner.
• Transfer of Global Depository Receipt
purchased in foreign currency by an
We shall in the future releases get more clarity
individual resident in India and employee
on other implications involved n computing
of an Indian company.
capital gains.
• Transfer of Global Depository Receipt or
bonds of an Indian company or share or
bonds of a public sector company sold by
the government and purchased in foreign
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