What is Cost Inflation Index(CII)?
Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost.
For example, if a property purchased in 1991-92 for Rs 10 lakh were to be sold now for Rs 40 lakh, indexed cost = (519/199) x 10 = Rs 26.08 lakh. And the long-term capital gains would be Rs 13.92, that is Rs 40 lakh minus Rs 26.08 lakh.
Cost Inflation Index Table
Example: How to Calculate Index Cost of Asset
If a assess purchased a house for Rs 200000 on 25th December 1988 and sellout for Rs.1000000 on 20 the December 2012 the computation will be as follows :
|Less Cost of Acquisition^||945783|
Tax exemption: Exemption under section 54 EC can be claimed only if you have made capital gains. As per the said section, the capital gains have to be invested in the bonds and the deduction its allowed to the extent of the amount invested.
Therefore, if you've made LTCG of, say, Rs. 30 lakh and invested it, the amount will be exempt from tax. But if you invest only a part, say Rs. 10 lakh, you will get an exemption only on Rs. 10 lakh; you will have to pay LTCG tax on the remaining Rs. 20 lakh.
However, to avail the exemption, the investment needs to be made within a specified period from the date of gains. "The investment has to be made within six months of occurrence of LTCG in order to be eligible to claim the exemption benefit under section 54 EC,".
Though you can invest a maximum of Rs. 50 lakh and that too within six months of the transfer of the asset, you can increase your benefit if your LTCG exceeds Rs. 50 lakh, the maximum investible permitted. "Say your LTCG of Rs. 1 crore arises in the month of January, you can invest the maximum amount of Rs. 50 lakh up to 31 March and can invest the remaining Rs. 50 lakh in April, since the limit is for investment per year, and not exemption per year."