Photo: Indranil Bhoumik/Mint
Photo: Indranil Bhoumik/Mint

Term of the day: Indexed cost of acquisition

Long term capital gains tax, or LTCG tax, from unlisted shares is taxed at 20.8% with indexation

In case of unlisted shares, if shares are transferred after 24 months, any gains from such transfer are considered as long-term capital gains (LTCG).

Further, LTCG from unlisted shares is taxed at 20.8% with indexation. ‘With indexation’ means one can adjust for inflation from the gains. For this purpose, one has to derive the indexed cost of acquisition of shares.

To arrive at it, the purchase price of shares has to be inflated based on the cost inflation index (CII) notified by the tax authorities. You can find CII on www.incometaxindia.gov.in. To calculate indexed cost of acquisition of shares, multiply the purchase price of share with CII number in year of sale and divide by the CII number in year of purchase.

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