How Indexation Can Save Your Income Tax?

If one knows the income tax procedure then one can reduce the tax liability to reduce the income tax. Here comes into play a concept called as indexation which can help you save considerable amount of tax.

Indexation is the process of calculating long-term capital gains for tax purposes after adjusting the purchase price for inflation.

The adjustment is done using the cost of inflation index issued by the Central Board for Direct taxes for each financial year. Indexation ensures that the increase in the value of the investment that can be attributed to inflation is not taxed and only the real return is taxed.

However if you do not know how to go about calculating the indexation then it is better to go for filing of income tax through a qualified tax return preparer who ill get you maximum income tax deductions.

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