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CA.Sonia (Querist)

21 October 2009 CALCULATION OF COST OF INDEXATION: for calculation of capital GAIN if the total cost of acquistion is paid in installments for a period of 10 years how the indexation is calculated in the year in which first installment is paid or when the final payment is paid?

CA.Tarun Maheshwari

CA.Tarun Maheshwari (Expert)

21 October 2009 It has been a question of differet opinions always. In my opinion (And what I do) we should take each year as separate year, and indexation should be done yearly. But sometimes, practically, we take indexation at final payment. I will suggest you to go with whatever favourable to the assessee. If anybody else can helpout us on this matter with some notification or circular or provision in this regard, then please update us.

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Aditya Maheshwari

Aditya Maheshwari (Expert)

21 October 2009 Ideally the property is not in your name untill you have registered the same or an agreement for sale has been made. So all payments made before that will be treated as advance and indexation will start from the year in which the property is trfd and on subsequent payments made indexation will be done yearly

chetan soni

chetan soni (Expert)

21 October 2009 Cost of acquistion means total cost attributable to such asset at the time of booking the asset in the books of accounts.

Now take the example of Flat purchased on loan. In this case we booked the flat on purchase date with full value & create the liability for the loan amount & then we paid the EMI to loan account directly. Now at the time of capital gain calculations we take the year in which such asset is recorded in the booked of accounts for indexation purpose.

Now in your case if your booking the assets on EMI basis then take the different year index for calculations purpose. But let me tell u that this will be wrong treatment for booking the assets in the books & also due to this the balance does not give the true & fair value on particular date.

Conclusion : In my opinion you should take the year for index of the year in which such asset was booked in the balance sheet.

Shyam Lal Naik

Shyam Lal Naik (Expert)

21 October 2009 Fully agree with Mr. Soni.

Cost of acquisition does not pre suppose that the amount must be sattled by way payment in cash/cheque.

Indexation of cost is a special dispension for the purpose of arriving at capitalm gain. There is no requirement that the asset must have been booked in the books of account. An assessee may be following cash basis of accounting. Yet, the method of calculation of capital gain will remain same.

To consider a reverse example. Let us say that we have paid 30% amount of the flat in advance(ie. before acquisition of the asset). Are we eligible for indexation on this advance wef the date of payment. Certainly No. The same logic applies to deferred payment as well.

Hence, neither the accounting date, nor the date of payment is relevant. The year of acquisition of the capital asset is relevant for the purpose of capital gain.