Exit with indexation should be offered
Business Standard|July 29, 2024
Two friends, Ram and Shyam, were travelling on a train when robbers started looting its passengers.
HARSH ROONGTA

Shyam owed some money to Ram. Before the robbers could reach them, Shyam took the money from his pocket and repaid his loan to Ram. Ram could not refuse the money, even though he knew he would shortly lose it to the robbers.

The debate about removing indexation benefits reminded me of this amusing story. There are three main ways in which capital gains taxation is levied worldwide. Each method seeks to acknowledge that the "real" capital gains are lower than the "paper" capital gains. Paper capital gains are calculated as the sales consideration minus the purchase price.

The first and most popular method is having a concessional rate for taxing such paper capital gains. The second method is to tax only a portion of the paper capital gains at normal tax rates (for instance, only 50 per cent of the paper capital gains are taxed at normal rates). The third method, which we followed, is to adjust the purchase cost for inflation, then tax the inflation-adjusted capital gains at a concessional rate.

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Bu hikaye Business Standard dergisinin July 29, 2024 sayısından alınmıştır.

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