Base Year

Tax Glossary Definition

Base Year

The base year serves as the benchmark year used to determine the indexed cost of acquisition when calculating long-term capital gains. Through indexation, the purchase price of a capital asset is adjusted for the effects of inflation, so that only the actual (inflation-adjusted) gain is subject to taxation. This method ensures fair computation of capital gains by reflecting changes in the asset’s real value over time.

Example: For assets acquired before April 2001, the Financial Year 2001–02 is treated as the base year for indexation while computing long-term capital gains under the Income Tax Act, 1961.

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