The Central Board of Direct Taxes (CBDT) in June 2013 has specified a value for the cost inflation index of 2013-14. In this regard, which of the statements given below is/are correct?
- 1. There has been a rise in the cost inflation index over the year 2012-13.
- 2. The cost inflation index helps in reducing the inflationary gains, thereby reducing the long-term capital gains tax payout for a taxpayer.
Select the correct answer using the code given below.
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Answer is Right!
Answer is Wrong!
This question was previously asked in
UPSC CAPF – 2013
– The CII for a financial year is typically higher than that of the previous financial year, reflecting the general trend of inflation. Given the inflationary environment in India around 2013, it is highly likely that the CII for 2013-14 was higher than that for 2012-13.
– The purpose of indexation using CII is to account for the decrease in the purchasing power of money due to inflation. By indexing the cost of acquisition and improvement, the taxable capital gain is reduced, as it accounts for only the real gain over and above inflation. This directly reduces the long-term capital gains tax liability for the taxpayer.
– Long-term capital gains tax is applicable on the profit made from the sale of assets held for a specified period (e.g., over 3 years for property, over 1 year for shares at that time, regulations change). Indexation benefit is available for certain long-term capital assets.