How is inflation measured?
In India, there are two broad measures of inflation - based on the consumer price index (CPI) and based on the wholesale price index (WPI). Of the two, the latter has a higher profile because it is measured every week. When you read about inflation rising to 7%, it is probably referring to inflation based on WPI.
WPI is based on the wholesale prices of 435 items ranging from agricultural commodities like wheat, rice, groundnuts etc to manufactured products like steel, cement etc. A single index number is calculated based on those prices, and the inflation rate is calculated by comparing the most recent index number with that of a year ago.
Long-term capital gains from debt-oriented funds are taxed at 10 per cent without indexation and 20 per cent with indexation. Indexation is adjusting the purchase price with inflation. Short-term capital gains are taxed according to the investor's tax bracket.
In India, there are two broad measures of inflation - based on the consumer price index (CPI) and based on the wholesale price index (WPI). Of the two, the latter has a higher profile because it is measured every week. When you read about inflation rising to 7%, it is probably referring to inflation based on WPI.
WPI is based on the wholesale prices of 435 items ranging from agricultural commodities like wheat, rice, groundnuts etc to manufactured products like steel, cement etc. A single index number is calculated based on those prices, and the inflation rate is calculated by comparing the most recent index number with that of a year ago.
How to Calculate Capital Gains ?
Most of the people think that
Capital Gain = Sell Price – Purchase Price
But , Actually the real formula is
Capital Gain = Sell Price – Indexed Purchase Price
What is Indexation ?
Indexation is a technique to adjust income payments by means of a price Index , in order to maintain the purchasing power of the public after inflation. We must understand that prices in general also rises, so the actual prices should not be used while computing the profits , rather It should be Indexed as per Inflation in the country ,so that people can get the real value from sale of there assets . Indexation is used in Tax treatment for Debt , Gold and other asset classes
Long-term capital gains from debt-oriented funds are taxed at 10 per cent without indexation and 20 per cent with indexation. Indexation is adjusting the purchase price with inflation. Short-term capital gains are taxed according to the investor's tax bracket.
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