Long term Capital gain without indexation

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suman (Querist)

05 May 2011 i have read in tax books about how an assesse can opt for "LTCG" without indexation but have a doubt i.e. why a person will choose such option ? can any pls give a example when any body is having gain from this provision .

CA PRIKSHIT GUPTA

CA PRIKSHIT GUPTA (Expert)

05 May 2011 if a person opted LTCG without indexation he have to pay tax with normal rate and in the case of indexation he have to pay 20% tax. Any person will opt without indexation when he will get tax slab benefit in comparision to indexation.

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CA PRIKSHIT GUPTA

CA PRIKSHIT GUPTA (Expert)

05 May 2011 Assume a person purchase a land in f.y. 2003-04 for Rs. 400000/- and sold in 2006-07 for Rs. 500000/-
with indexation
sale value 500000/-
purchase value with indexation
400000*519/463 448380/-
LTCG 51620/-
income tax @ 20% 10324/-

without indexation
capital gain will be Rs. 100000/- and tax @10% will be Rs. 10000/- and the assessee will have to pay less tax in case of without indexation.

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Amol Gopal Kabra (CA,CS,DISA)

Amol Gopal Kabra (CA,CS,DISA) (Expert)

05 May 2011 I would like to correct CA Prikshit Gupta. There is no difference in rates of tax in case of indexation is not opted for. Even if indexation is not opted for, the assessee gets the same rate of tax as is applicable when indexation is opted.

There is no specific reason in this regard that why a person would opt not to take indexation. There are several reasons. What comes to my mind are certain reasons that I'm listing here.

1. In case of LTCG on shares [Section 10(38)] the assessee may like to show more gain by not applying indexation, as he need not pay tax on it.

2. It may happen that by applying indexation, the result is Long Term Capital Loss and the assessee does not want to show loss in the return.

There can be many more reasons like this.

Sunil Kr. Sanganeria

Sunil Kr. Sanganeria (Expert)

05 May 2011 If assets which is transferred is equity shares, units of equity oriented mutual fund and the transaction is subject to STT, any long term gain on sale is exempted u/s 10(38) of the IT Act. But if no STT is charged and gain is long term, one can compute tax in two ways:

1. 20% tax with Indexation
2. 10% without indexation

An assessee can opt any one of the option which is beneficial to him.

CA PRIKSHIT GUPTA

CA PRIKSHIT GUPTA (Expert)

05 May 2011 Dear Amol
Calculation of capital gain with indexation or without indexation is for computation only not for capital purpose of the assessee. So, there will be no effect on capital of the assessee due to indexation is opted or not.
Moreover, for tax rates on long term capital gain, Please go for section 112 of income tax act. this section says that there is tax difference in case of indexation is opted or not.

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