Capital Gains

Indexed cost of acquisition and of improvement for long term capital gains

Where capital gain arises from the transfer of the long term capital asset, the cost of acquisition and cost of improvement are linked to a Cost Inflation Index notified by the Central Government. Long term Capital Gains will be computed by deducting from the full value of the consideration the expenditure incurred in connection with the transfer, the indexed cost of acquisition and the indexed cost of improvement.

The method of indexation provides the assessee with a protection against inflation and erosion of the real worth of his investment. It has been provided that the cost of acquisition or the cost of improvement shall be increased proportionately to the increase in the general cost inflation index. This index begins from April 1, 1981, and as on that date its figure is taken at 100 and the figures for successive financial years are notified by the Government from time to time. The latest figures are provided by the notification- S.O.770(E) given below. However, with effect from 1.4.1998 (Assessment year 1998-99) bonds and debentures other than capital indexed bonds issued by the Government wil not be eligible for indexation.

Notification

S.O.770 (E) :- In exercise of powers conferred by clause (v) of the Explanation to Section 48 of the Income Tax Act, 1961 (43 of 1961), the Central Government, having regard to seventy five percent of the average rise in the Consumer price index for urban non manual employees, hereby specifies the Cost Inflation Index as mentioned in column (3) of the table below for the Financial Year (including the financial year 1997-98) mentioned in the corresponding entry in column (2) of the said table:

	Financial Year	Cost Inflation Index
	1981-82	100
	1982-83	109
	1983-84	116
	1984-85	125
	1985-86	133
	1986-87	140
	1987-88	150
	1988-89	161
	1989-90	172
	1990-91	182
	1991-92	199
	1992-93	223
	1993-94	244
	1994-95	250
	1995-96	281
	1996-97	305
	1997-98	331
	1998-99	351