Glide Invest FAQ: What is indexation?

What is indexation?

Indexation is the benefit provided on long-term capital gains in various assets, including debt mutual funds. It allows investors to increase their ‘cost of acquisition’, while calculating capital gains and, thus, reduces taxable capital gains. Indexation recalculates the original value of your purchase in line with the inflation rate. Which means, less tax, and you walk away with more cash in hand.

Long Term Capital Gains on Debt funds are taxed at 20% with indexation benefit. Fund houses often emphasize the benefit of investing in debt before 31 March in order to take advantage of indexation for an additional year. For example, if you invest on 30 March 2021 and redeem on 5 April 2024, you will get the indexation benefit for four years (FY21, FY22, FY23 and FY24), even though you have held the investment for only slightly more than three years.
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