Long-term capital gains -Fair Market Value (FMV) cutoff date deserves to be revised to 01.04.2025 from 01.04.2001.

Long-term capital gains -Fair Market Value (FMV) cutoff date deserves to be revised to 01.04.2025 from 01.04.2001.

Meaning of "adjusted", "cost of improvement" and "cost of acquisition".

55. (1) For the purposes of 1[sections 48 and 49],-

(b) in relation to any other capital asset,-]

(i) where the capital asset became the property of the assessee before the 34[1st day of April, 2001]], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 35[1st day of April, 2001]], at the option of the assessee ;

Earlier cut off dates:

Earlier the cut off dates were as follows:

01.04.1954

01.04.1964

01.04.1974

01.04.1981

01.04.1981 was substituted by 2001 vide the FA 2017 w.e.f. 01.04.2018.

01.04.2001 is still continuing.

So we find that earlier changes were made twice to provide gap or interval of ten years and then after interval of seven years. That was relatively higher inflation period. After 1981 next change was made after a lapse of period of 20 years by shifting date to 01.04.2001.

Since then 25 years have lapsed from cut off date of 01.04.2001. During this period inflation rates have been very high, high to moderate. However, on an average

In earlier article author had analysed cost inflation index and real inflation in the following article

Cost inflation index guidance: only a portion of CPI rise is used for indexation, affecting capital gains computation. Dated 25.07.2010.

In this article various aspects of CII as prescribed for long term capital gains were discussed. For analysis the following table was also provided in the article:

COST INFLATION INDEX NALYSIS

From the above table we find that in eleven years real inflation have been more than 10%.

Up to 2010-11 increase in CII of 611 was allowed. This is based on 75% of inflation. If 100 % inflation be considered then index would be 915. Meaning almost ten times since 01.04.1981.

If we consider CII for 2001 i.e. 426 and 2011 ie.e 711 we find increase of 285 if we consider 100 % inflation there will be increase of 380 means CII would be 426+380 =806 this is slightly lower than double (852)

Therefore, it was desirable to shift the cut off date from 2001 to 2011 or few years thereafter.

In the Income Tax Act, 2025 also the same cut off date of 01.04.2001 is still continued.

Though every year some increase in CII allows some additional deduction, however, to be more realistic it is desirable to shift the cut-off date to 01.04.2025 to allow sufficient deduction to enable replacement of long term capital assets particularly landed properties, gold, silver, jewellery and equity shares in companies.

This is because such properties, when held for long duration of say five years are always long-term investments for personal and business purposes.

Honorable Finance Minister is requested to consider ground realities and shift cut off date to 01.04.2025 to apply for tax year 2026-27 and then to provide cost inflation index every year or at interval of three to five years depending of inflation rates.