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CII – Cost Inflation Index From 1981-1982 To 2016-2017:

Cost Inflation Index : Indexation is a process by which Cost of acquisition is adjusted against inflationary rise.  Every year Govt notifies Cost Inflation Index which is used for calculating Long term capital gains.

When investor sells its property then CII index is used to determine current indexed value.

Govt have recently notified CII for year 2016-1017.Historical values of CII are as follows:

 

Financial Year

 

Cost Inflation Index
1981-1982 100
1982-1983 109
1983-1984 116
1984-1985 125
1985-1986 133
1986-1987 140
1987-1988 150
1988-1989 161
1989-1990 172
1990-1991 182
1991-1992 199
1992-1993 223
1993-1994 244
1994-1995 259
1995-1996 281
1996-1997 305
1997-1998 331
1998-1999 351
1999-2000 389
2000-2001 406
2001-2002 426
2002-2003 447
2003-2004 463
2004-2005 480
2005-2006 497
2006-2007 519
2007-2008 551
2008-2009 582
2009-2010 632
2010-2011 711
2011-2012 785
2012-2013 852
2013-2014 939
2014-2015 1024
2015-2016 1081
2016-2017 1125

Significance of Cost Inflation Index:

Suppose

  • Ramesh purchased residential property in June 2006 :@ Rs.16 Lakh
  • He sold this property in June 2015: @ Rs.60 Lakh

Then for calculating indexed value of property, CII of corresponding years will be used:

 

Capital Gain Tax CII

Ramesh will calculate Capital gains based on this indexed cost.

 

Long term Capital Gain will be calculated as:

Sale value under consideration after Expenses paid towards brokerage, advt & indexed cost of improvement

(Less)

Indexed Cost of acquisition 

 

After Calculating capital gains, Ramesh has options as below to claim exemption from LTCG tax:

  1. Buy Residential property of value equivalent to capital gains.This property must be purchased either 01 yr Before OR 02 Yrs After sale of property.
  2. Property need to be bought on sellers name only to claim exemption.
  3. If investor invests in under construction property then Construction of property must be completed within 03 Yrs after sale of property.As per one of court verdict,if builder of new construction fails to hand over property within 03 yrs,exemption is still allowed.
  4. Invest capital equivalent to capital gains in 54EC capital bonds @6% (interest paid annually) issued by NHAI or REC, with in 06 months of sale of property.
  5. If entire capital gains is not invested then proportionate exemption will be allowed.
  6. If he decides to pay tax then he will need to pay long term capital gain tax at rate of 20% + surcharge + Cess on capital gains.

Which Transactions Are Reported To Income Tax Authorities Through A.I.R:

A.I.R. Annual Information Returns needs to be furnished by Banks,person authorized by RBI,shares / debenture issuing companies,Registrar or sub-registrar office,Mutual funds – in respect of specified high value transactions registered by them in financial year.

Specified high value transactions are as follows:

  1. Cash deposits aggregating Rs. 10 Lakh or more : Bank need to report cash deposit aggregating to Rs. 10 Lakh or more in saving account  in a year.
  2. Payment of Rs.2 Lakh or more against credit card bill: Banks / credit card issuing company need to report payment of Rs. 2 Lakh or more against payment credit card bill.
  3. Subscription of mutual funds worth Rs.2 lakh or more: Mutual fund trustees need to report receipt of Rs. 2 Lakh or more for acquiring mutual fund units.
  4. Receipt of Rs. 5 Lakh or more for acquiring debentures or bonds:Debenture / bond issuing company will report receipt of Rs.5 lakh or more for acquiring debentures / bonds issued by company.It will also apply for investors who have applied for Tax Free Bonds for Rs.5 lakh or more.
  5. Receipt of Rs. 1lakh or more for acquiring shares of company.
  6.  Purchase or sale of immovable asset worth Rs.30 Lakh or more: Office of registrar / sub registrar need to report purchase / sale  transaction worth Rs.30 lakh or more.
  7. Receipt of Rs. 5 lakh or more for bonds issued by RBI.

All data is reported in electronic form for single as well joint transactions.

Even if high value transactions are reported to income tax department, there is no worry if transactions are authentic, taxes are paid &  complete documentation , transparency is maintained.

BUDGET 2016 & Impact On EPF,PPF,NPS,Gold Bonds:

Finance Minister of India presented union budget 2016 today and have some positive or negative implications for investors.We have taken a view on impact of budget on some important financial  instruments.

Update on 08/03/2016 :

Finance minister have announced withdrawal of budget proposal to tax EPF.

BUDGET2016 EPF TAX WITHDRAWAL

  1. No change in income tax slabs:There is no change in income tax slab for year 2016-2017.But for individuals whose income is not exceeding Rs. 5 lakh, ceiling of income tax rebate will be Rs.5000 instead of Rs.2000.So those tax payers will get relief of Rs.3000 in their tax liability.
  2. PPF withdrawal to remain tax free: PPF which is one of the famous financial instrument will enjoy EEE status i.e.interest earned and withdrawals will be tax free.BUDGET2016 PPF TAX FREE WITHDRAWAL
  3. EPF withdrawal partially taxable: Govt have tried to bring EPF in line with NPS.For contributions made after April 01,2016.. 40% of the accumulated balance will be exempt from tax.The remaining 60% (ONLY INTEREST PART) will be taxed ..making provident fund partially EET -Exempt-Exempt-Taxable from EEE.BUDGET2016 EPF WITHDRAWAL TAX
  4. Tax free 40% withdrawal from NPS :40% corpus that can be withdrawn at retirement from NPS -National Pension Scheme will now be exempt from tax…Earlier withdrawal from NPS was completely taxable. More clarification from Govt related to NPS/EPF withdrawal: http://pib.nic.in/newsite/erelease.aspx?relid=137108
  5. No capital gains for Gold bonds: If you held Gold bonds till maturity & if there is capital gains then it will be tax free.Also if they are sold in secondary market then indexation benefit will be available.But interest earned from gold bonds will be taxable.
  6. Gold monetization scheme:Interest earned will be exempt from tax ..for certificates issued under Gold monetization scheme.
  7. 10% tax on more than 10 Lakh dividend :If dividend earned from stocks is more than 10 lakh then dividend earned above Rs.10 lakh will be taxed at 10%.It will not include dividend earned from mutual funds.But its not clear till whether mutual funds will pay tax on dividends received above Rs. 10 lakh as it will be likely to be higher than this limit.
  8. Additional exemption for first home buyer:Additional exemption of Rs.50,000/- for housing loan up to Rs.35 lakh subject to  cost of house is not more than Rs.50 lakh.This exemption is applicable for first home buyers.
  9. Additional Deduction for those living in rented houses:Under section 80GG, Deduction for rent paid will be raised from Rs.24,000 to Rs.60,000 per annum.
  10. Proposed Reduction in service tax for single premium annuity plans: For Single premium annuity plans it is proposed to reduce service tax from 3.5% to 1.4%.
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Information provided on this blog is for general purpose only & not investment advice.Please take advice of SEBI Registered Investment Advisors before taking any investment decision.
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