Consider the following statements about indexation in the context of capital gains taxation:
Statement I: Indexation adjusts the original purchase price of an asset to account for inflation over the holding period.
Statement II: The new regime eliminates the indexation benefit but reduces the LTCG tax rate from 20% to 12.5%.
Which one of the following is correct in respect of the above statements?
1
Both Statement I and Statement II are correct and Statement II explains Statement I
2
Both Statement I and Statement II are correct, but Statement II does not explain Statement I
3
Statement I is correct, but Statement II is incorrect
4
Statement I is incorrect, but Statement II is correct