NEW NOTIFICATION FOR COST INFLATION INDEX FOR FY 2020-21 (AY 2021-22) | INCOME TAX UPDATES |
NEW NOTIFICATION FOR COST INFLATION INDEX FOR FY 2020-21 (AY 2021-22) | INCOME TAX UPDATES |
A Cost Inflation Index table is used to calculate the long term capital gains from a transfer or sale of capital assets. Capital gain refers to the profit acquired from the sale/transfer of any capital assets, including land, property, stocks, shares, trademarks, patents, etc.
In accounting, usually, long term capital assets are recorded at their cost price in books. Thus, despite rising prices of assets, these capital assets cannot be revalued.
Thus, at the time of sale of these assets, the profit or gain acquired from them remains high due to their high sale price in comparison to their purchase price. As a result, assessees also have to pay a higher income tax on the gains from these assets.
With the application of Cost Inflation Index for capital gain, in the long run, the purchase price of assets is adjusted according to their sale price, leading to lower profits and lower tax amount on them.
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