Using Inflation to bring down capital gains tax

You could save tax on your long term gains if you opt for cost inflation indexation.

Example-
Property bought in 2001 for Rs 1Lakh.
Sold in 2011 for Rs 10 Lakh.

Without using cost inflation-
Gain = 10Lakh-1Lakh=9Lakh.
Tax = 10% of gain



With using Cost Inflation-
Gain= 10 Lakh - (1Lakh*Cost Inflation for year 2011)/Cost Inflation for year 2001
         which comes out to be less than 9 Lakh.
Tax= 20% of gain

So, overall gain is much less and you have to pay less tax ( varies from case to case)