So, indexation applies only to assets held for long-term. Are all assets held for less than 36 months short term and those held for more than 36 months long term capital assets? Different assets have different periods of holding to be called short term and long term.

How is indexation done?

Indexation is a system or technique used by organizations or governments to connect prices and asset values. This is done by linking adjustments made to the value of a good, price of a service, or another specified value to a predetermined price or composite index.

How indexation is calculated on property sale?

Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost. For example, if a property purchased in 1991-92 for Rs 20 lakh were to be sold in A.Y. 2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh.

How do I avoid Capital Gains Tax on property sale?

However, to avoid tax on short-term capital gains, the only way out is to set it off against any short-term loss from the sale of other assets such as stocks, gold or another property. To plug tax leaks, the government has now made it mandatory for buyers to deduct TDS when they buy a house worth over Rs 50 lakh.

How long do I have to live in a property to avoid Capital Gains Tax?

However as a general rule of thumb, you should look to make it your permanent residence for at least 1 year i.e. 12 months (but it can be less and there have been successful cases for much less than this). The longer you live in a property the better chance you have of claiming the relief.

How do you calculate tax on capital gains without indexation?

For Tax without Indexation, you simply find out normal profit (sale price – cost price) and then calculate the tax. So you can calculate tax using both ways and then choose the one which is lower .

When do you deduct the indexation allowance from a gain?

Indexation allowance is deducted when working out the gain chargeable to corporation tax. The indexation allowance is based on movements in the retail prices index (RPI) between the month in which the asset was acquired and the month in which the asset was disposed of.

How to calculate an adjusted price for indexation?

Indexation = $ 267,987.44 Capital Gain = 82912.56 Capital Gain Tax = 12436.88 Now, we can calculate the gain which would be sale less index cost of acquisition which is $350,900 less $267,987.44 which would be $82,912.56

How does indexation help reduce long term capital gain?

Indexation helps one in reducing the long term capital gain by using the cost of inflation index which in turn lowers the taxable income. Owing to having multiple benefits of indexation like yielding profitable returns, bringing stability and providing liquidity, index-linked investments are chosen over the conventional fixed deposits.