Question 1) In the practical world ,to what extent does Indexation actually reduce the TAX INCIDENCE on Long Term Capital Gains (especially on Property) ?
For example , say a person purchased a plot in the year 2000 for Rs. 1,00,000 . He sells it for Rs. 2,00,000 in 2005 . His Indexed Cost would be 100000 x 497 / 406 = Rs. 1,22,414 . So , his LTCG would be 2,00,000 – 1,22,414 = Rs. 77,586 . He pays 20 % on this , so his LTCG Tax would be Rs.15,517 . His actual LTCG is Rs. 1,00,000 . Rs. 15,517 is 15.5 % of Rs. 1,00,000 . So , in effect , because of Indexation , his TAX INCIDENCE reduced to 15.5 % instead of 20% (by almost 5 % ) .
So , in real life , in India , after the Cost of an asset is recalculated using the Cost – Inflation Index , is the tax that the assessee has to pay on the Capital Gain considerably reduced & becomes negligible or is it that even after the cost is adjusted for inflation , the assessee ends up paying almost close to 20 % of the ACTUAL PROFITS ?
Question 2 ) In case of Gold , Jewellery , Property , etc , when an Assessee makes a LongTerm Capital Gain , does he have an option to select whether he wants to pay (i) 10 % on the LTCG or (ii) 20 % on the LTCG after the Cost has been recalculated using the Cost Inflation Index ?