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Mr. Raj has bought :
2000 units of a stock at Rs. 20 on 1 Jan 2013,
2000 more units at Rs. 30 on 1 May 2013
2000 more units at Rs. 40 on 1 December 2013
and sold
5000 units at Rs. 50 on 30 December 2014,
Should he go ahead with Indexed Capital Gains Tax or Non Indexed Capital Gains Tax to save some Tax.
CII for 2012-13 = 852
CII for 2013-14 = 939
CII for 2014-15 = 1024
a. Indexed Capital Gains Tax
b. Non Indexed Capital Gains Tax
c. Both are same
d. None of the above
Ans - b
Solution :
Each purchase/sale transaction is matched on a First-In-First-Out basis.
All the units sold have been held for over one year, so long term capital gains tax applies.
So here, out of the 5000 units sold, we have three separate pieces to be considered.
The First 2000 are matched to the first 2000 bought, appropriately indexed, gains calculated and tax calculated.
Here you get two years of Indexation (2012-13 and 2014-15)
Indexed Purchase Price = 40,000 * (1024/852) = 48,075
Capital Gain = 100000 – 48075 = 51925
The non-indexed gain is Rs. (100000 - 40000) = Rs. 60000
Indexed Capital Gain: Rs. 51925
Non Indexed Capital Gain: Rs. 60000
The First 2000 are matched to the first 2000 bought, appropriately indexed, gains calculated and tax calculated.
Here you get two years of Indexation (2013-14 and 2014-15)
Indexed Purchase Price = 60,000 * (1024/939) = 65431
Capital Gain = 100000 – 65431 = 34569
The non-indexed gain is Rs. (100000 - 60000) = Rs. 40000
Indexed Capital Gain: Rs. 34569
Non Indexed Capital Gain: Rs. 40000
The next 1000 units are sold at Rs. 50 and bought at Rs. 40, appropriately indexed, gains calculated and tax calculated.
Here you get two years of Indexation (2013-14 and 2014-15)
Indexed Purchase Price = 40,000 * (1024/939) = 43620
Capital Gain = 50000 – 43620 = 6380
The non-indexed gain is Rs. (50000 - 40000) = Rs. 10000
Indexed Capital Gain: Rs. 6380
Non Indexed Capital Gain: Rs. 10000
So let’s add them all up.
Indexed
Total Capital Gain = 51925 + 34569 + 6380 = 92874
Capital Gains Tax Appl (%) = 20%
Capital Gains Tax = 18575
Non-Indexed
Total Capital Gain = 60000 + 40000 + 10000 = 110000
Capital Gains Tax Appl (%) = 10%
Capital Gains Tax = 11000
He should go ahead to choose the non-indexed option to save some tax of Rs. (18575 - 11000) = Rs. 7575/-.
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