1. What Is Capital Gain With Indexation?

Capital gain with indexation refers to the profit realized from the sale of a capital asset after adjusting the purchase price for inflation. This adjustment reduces the taxable capital gain by accounting for the decrease in purchasing power over time.

2. How Does The Calculator Work?

The calculator uses the capital gain formula:

Where:

• Sell Price — The price at which the asset was sold
• Indexed Cost — The original purchase price adjusted for inflation using relevant indexation factors

Explanation: This calculation determines the actual taxable gain by accounting for inflation's impact on the asset's purchase price over the holding period.

3. Importance Of Capital Gain Calculation

Details: Accurate capital gain calculation with indexation is essential for tax compliance, investment planning, and understanding the real return on investments after accounting for inflation.

4. Using The Calculator

Tips: Enter the sell price and indexed cost in dollars. Both values must be non-negative numbers. The calculator will compute the capital gain (or loss if negative).

5. Frequently Asked Questions (FAQ)

Q1: What is indexation in capital gains?
A: Indexation is the process of adjusting the purchase price of an asset for inflation using government-published cost inflation index (CII) numbers to calculate the real capital gain.

Q2: When should indexation be applied?
A: Indexation typically applies to long-term capital assets (held for more than a specified period, usually 1-3 years depending on jurisdiction) to account for inflation during the holding period.

Q3: How is the indexed cost calculated?
A: Indexed cost = (Original purchase price × CII of sale year) / CII of purchase year. This calculator requires you to provide the already indexed cost.

Q4: Can indexation result in a lower tax liability?
A: Yes, by increasing the cost basis of the asset, indexation reduces the taxable capital gain, potentially resulting in lower capital gains tax.

Q5: Are all assets eligible for indexation?
A: No, eligibility varies by jurisdiction. Typically, real estate, gold, bonds, and certain other long-term investments qualify for indexation benefits.