Indexation

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CA Alpesh Tated (Querist)
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29 March 2010 My house is LTCA (holding period > 36 months) but I have done some improvement 15 months back.

If I sold the asset today, whether indexation benefit will be available on cost of improvement.

The softwares for IT Computation are indexing the improvement cost by default.

Pls. quote case law or section reference to support the answer.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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29 March 2010 Cost of improvement is allowed to be indexed as per second proviso to section 48 of the Income tax Act,1961.

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CA Alpesh Tated

CA Alpesh Tated (Querist)
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29 March 2010 Thanks a lot.

I got these from the reference given above-

The second provision of Section 48 says “Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted”
By the above provision it is clear that long term capital asset have the benefit of indexation irrespective of the fact that even it had the improvement within the period of 36 months of before transfer

Section 2(29A) - long-term capital asset” means a capital asset which is not a short-term capital asset
Section 2(42A) - short-term capital asset” means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer
By the above sections, it is clear that to qualify as long term capital assets the holding period of that asset taken into account not any improvement made during the period of holding. So, we can avail indexation benefit for both cost of acquisition and cost of improvement.

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