How to work out the Indexed Cost of Acquisition and Improvement?

[Second Proviso-Sec 48]

A) In case of transfer of long-term capital assets, indexed cost of acquisition and indexed cost of improvement shall be deducted from the full value of consideration;

B) Indexed cost of acquisition and Indexed cost of improvement shall be computed with reference to Cost Inflation Index ('CIl') in the following manner:

Indexed Cost of Acquisition = [(Cost of Acquisition) × (CIl transfer year)]

(CIl for acquisition year or for FY 2001 - 02)

Indexed Cost of Improvement = (Cost of Improvement) ×(Cll-transfer year)

Cll for the year of Improvement

Indexation is a process by which the cost of acquisition is adjusted against inflationary rise in the value of asset.

For this purpose, Central Government has notified cost inflation index. The benefit of indexation is available only to long-term capital assets. For computation of indexed cost of acquisition following factors are to be considered:

• Year of acquisition / improvement
• Year of transfer
• Cost inflation index of the year of acquisition / improvement
• Cost inflation index of the year of transfer