InvestorQ : Am I eligible to get indexation benefits on my capital gains earned on debt funds?
Aditi Sharma made post

Am I eligible to get indexation benefits on my capital gains earned on debt funds?

Answer
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Aashna Tripathi answered.
1 year ago


One of the advantages of debt funds when we calculate long term capital gains is that it gives us the added benefit of indexation. Interestingly, one must remember that the benefit of indexation is no longer available in case of equity funds although long term gains on equity funds are now being taxed at 10%. Now what does indexation mean? It is the compensation for an increase in the cost inflation index (CII). The Income Tax department announces the CII number and the relevant numbers are as under. Year 2001-02 has now been adopted as the new base year for CII. Check the table on index numbers below:

Index Values announced by Income Tax Department (Base is 2001-02)

FY 2001-02

FY 2002-03

FY 2003-04

FY 2004-05

FY 2005-06

FY 2006-07

100

105

109

113

117

122

FY 2007-08

FY 2008-09

FY 2009-10

FY 2010-11

FY 2011-12

FY 2012-13

129

137

148

167

184

200

FY 2013-14

FY 2014-15

FY 2015-16

FY 2016-17

FY 2017-18

FY 2018-19

220

240

254

264

272

280

These index numbers above are the guide that all individuals paying capital gains must use for indexing. When you buy in a particular financial year and sell in another financial year (beyond a period of 3 years to qualify), you must multiply the original cost of acquisition by the selling year index number and divide by the buying year index number. The result will be the indexed cost of acquisition which will be higher than the original cost of acquisition. You only need to pay capital gains tax on the indexed value of capital gains which is (the difference between the selling value and the indexed cost of acquisition. Let us see how this will work.