CAIIB-RETAIL BANKING-LAST MINUTE REVISION-CASE STUDY : 4
Case Studies on Capital Gains
Purchase Price - Rs. 1000000 Year of Purchase - 1995 Sale Price - Rs. 2500000 Year of Sale - 2008 Cost Inflation Index (CII) - Purchase - 281 Cost Inflation Index (CII) - Sale - 582 Calculate Indexed Purchase Price Capital Gain Tax with Indexation (20%) Tax without Indexation (10%) capital gain =sale price-(purchase price*(cii sale/cii price)) =2500000-(1000000*(582/281)) =428825.7 Tax without indexation=1500000 × .10 Tax with indexation=428826.6 × .20
Long Term Capital Gain Cost of purchasing a property in April 2007 - Rs 35,00,000 Cost of selling the property in May 2011 - Rs 50,00,000 Inflation Index- 2007-2008 - 551 2011-2012 - 785 Indexed Purchase Cost - 35,00,000 x 785/551= Rs 49,86,388 Long Term Capital Gains = 50,00,000-49,86,388 = Rs 13612* Tax on LTCG= 13612 x 20%= Rs 2722 Education Cess= 2722 x 3% = Rs 82 Total Tax on LTCG = Rs 2804 *The non-indexed gain would have been Rs 15 lakh Thus, the indexation benefit reduces the tax liability substantially which otherwise would have been a huge payout for any investor.
This is how short-term capital gains are calculated: Cost of Equity Mutual Funds units bought in 2011 - Rs 100,000 Price of same units sold after 6 months - Rs 120,000 Short Term Capital Gains - Rs 20,000 Tax Applicable - 20,000 x 15%= Rs 3000 Education Cess - 3000 x 3%=Rs 90 Total Tax payable = Rs 3090