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Let us try to understand this with a simple example.

An asset was purchased in FY 1996-97 for Rs. 2.50 lacs
This asset was sold in FY 2004-05 for Rs. 4.50 lacs
Cost Inflation Index in 1996-97 was 305 and in 2004-05 it was 480
So, indexed cost of acquisition would be:
Rs. 2,50,000 * (480/305) = Rs. 3,93,443

Long Term Capital Gains would be calculated as => Capital Gains = Selling Price of an asset – Indexed Cost i.e. Rs. 450000 – Rs. 393443 = Rs. 56557. Therefore tax payable will be 20% of Rs. 56557 which comes to Rs. 11311.

Had it not been for indexation The Capital Gains tax would have been = Selling Price of an asset – Cost of acquisition i.e. Rs. 450000 – Rs. 250000 = Capital Gains is Rs. 200,000. Therefore tax payable @ 10% of Rs. 200000 would have come to Rs. 20,000.

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Questions:

1. If I apply CII, then my tax will be 20% instead of 10%?
2. After paying the capital gains tax, the funds I have RS. 4.5 Lacs less tax, is not further taxable if I Keep it in FD?
3. If I don’t want to pay the capital gain tax, I need to reinvest in assets as per the terms. Is it the full amount or the “capital Gained” amount. In your example, can I reinvest only in new assets for Rs. 4.5 – 2.5 lacs or 4.5 lacs – 393443
4. Is Balance amount of my original investment is at my disposal – ie. 2.5 lacs or 393443 ( extension of previous Q ) without paying any tax?

Thanks for your article. Your article was useful.

I have one HDFC account over there at Kerala. But I shifted to b’lore for a job. Recently got into one job and they don’t hold a salary account yet. They need an bangalore account. To start a personal account here the minimum deposit is like 10000 here, right? Is it possible to transfer my account from kerala to bangalore? Do they still need that minimum deposit amount here also?