Using indexation to earn a guaranteed tax free profit, yet book a loss
The captioned statement may sound too good to be true, and it is only fair if you think – “there must be a catch somewhere”. Honestly, there isn’t and this concept of indexation benefit, if properly understood and implemented, is one of the most powerful tax planning tools; and if timed correctly can not only be used to make your returns on debt and debt oriented investments tax free, but also enable you to book a long term capital loss which can be offset against any other long term capital gains.
Understanding and applying indexation
The previous post on capital gains mentions two ways of taxation for various asset classes- 10 % without indexation, and 20 % with indexation. What exactly is indexation, why is it required, and how to arrive at the indexed value? Let us find out –
