InvestorQ : Can I get the benefit of indexation on capital gains on equities?
Jignesh Gupta made post

Can I get the benefit of indexation on capital gains on equities?

Answer
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Maniish Lofar answered.
1 year ago


Indexing is the process of claiming benefit of inflation adjustment to your asset cost so that your actual profit becomes more realistic. Indexation is based on an annual index number that is announced by the CBDT each year. It is only applicable in case of long term capital gains. However, in case of equities, since long term capital gains are entirely tax free till March 2018 in the hands of the investor, the question of indexation was not applicable. Post April 2018, while the LTCG on equities is taxable at 10% flat tax, the benefit of indexation has not been given since there is a blanket basic exemption of Rs.1 lakh per financial year that is provided in this case.

It is important to understand the nuances of LTCG and STCG and it can go a long way in understanding the merits and demerits of your equity actions vis-à-vis other asset classes. Remember, equity does get preferential treatment in the definition and rates of capital gains tax and this must always be factored into your financial plan!