Capital Gain Indexation

Every taxpayer, who has income under Long term capital gain is needed to calculate its capital gain through indexation. In this post, you will get knowledge about the Capital Gain Indexation with an example, cost inflation index formula, and cost inflation index chart (Capital Gain Indexation Chart).

What is the Cost Inflation Index?

Market change from time to time and market inflation is also changed due to which there is a great risk for the investor. At the time of calculation of Long Term Capital Gain, the income tax law considers market instability and inflation of the cost of assets and investment. For this purpose, taxpayers use the Cost Inflation Index.

In short, we can say that it is an index used to calculate the notional increase in the value of an asset or of investment due to inflation.

Capital gain indexation chart or say cost inflation index chart

Under Income Tax, Initially, 1981-82 was considered as the base year for the calculation of long-term capital gain but it results in hardship for taxpayers. The hardship is in getting the properties valued which were purchased before 1st April 1981. Tax authorities were also finding it difficult to rely on the valuation reports.

Hence, the government decided to shift the base year from 1981 to 2001. After shifting, this valuation will be quick and accurate. Here we show you both charts, i.e. capital gain indexation chart with new cost value (New CII) and capital gain indexation chart with old cost value (Old CII).

Also Read:- Meaning of Capital Assets- Definition, Example, and its Types

Capital Gain Indexation Chart with New CII

Cost inflation index chart from the Financial year 2001-02 to the Financial year 2021-22

Financial YearCIIFinancial YearCII
2001-02 (Base Year)1002012-13200
2002-031052013-14220
2003-041092014-15240
2004-051132015-16254
2005-061172016-17264
2006-071222017-18272
2007-081292018-19280
2008-091372019-20289
2009-101482020-21301
2010-111672021-22317
2011-12184www.newtaxroute.com

Cost Inlation Index For FY 2021-22

The Cost Inflation Index For the financial year 2021-22 has been notified by the Central Board of Direct Tax (CBDT) as 317 for determining long-term capital gains under Income Tax. The notification is dated 15th June 2021. For the previous year i.e. for FY 2020-21, it was 301.

Capital Gain Indexation Chart with Old CII

Cost inflation index chart from the financial year 1981-82 to the financial year 2016-17

Financial YearCIIFinancial YearCII
1981-82 (Base Year)1002000-01406
1982-831092001-02426
1983-841162002-03447
1984-851252003-04463
1985-861332004-05480
1986-871402005-06497
1987-881502006-07519
1988-891612007-08551
1989-901722008-09582
1990-911822009-10632
1991-921992010-11711
1992-932232011-12785
1993-942442012-13852
1994-952592013-14939
1995-962812014-151024
1996-973052015-161081
1997-983312016-171125
1998-99351
1999-00389www.newtaxroute.com

Also Read:- Capital Gain Tax Rate- Short Term – Long Term Capital Gain

Who notifies the Cost Inflation Index

The Central Government specifies the cost inflation index by notifying in the official gazette-

Cost Inflation Index= 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year.

* Consumer Price Index compares the current price of a basket of goods and services (which represent the economy) with the cost of the same basket of goods and services in the previous year to calculate the increase in the price.

Cost Inflation Index Formula

To calculate the current value of long-term capital assets, the indexation benefits are applied to “Cost of acquisition” i.e purchase price of the capital assets, then it becomes “Indexed cost of acquisition“.

Here is the formula to calculate the Indexed cost of the value

Indexed cost of acquisition = CII for the year of transfer * cost of acquisition / CII for the first year in which assets is held by assessee or year 2001-02, whichever is later

Indexed cost of improvement = CII for the year of transfer * cost of improvement / CII of the year in which improvement to the assets took place.

Points to remember

  • For property received under the will, CII has to be taken for the FY n which the property is received and the actual payment year needs to ignore.
  • Ignore the improvement cost incurred before 1st April 2001.
  • Index benefit is not allowed in the case of bonds and debenture except capital indexed bonds or sovereign gold bonds issued by the RBI.

Also Read-

Indexation of Capital Gain- practical example

Example:- Mr. Kiyaan purchased a flat in FY 2001-02 for Rs. 10 Lakh. He sells the same flat in FY 2017-18. Now the question is what will be the indexed cost of acquisition.

In this case, as per the above-mentioned chart, the CII for the years 2001-02 and 2017-18 is 100 and 271 respectively. Hence, the Indexed cost of acquisition will be 10,00,000*272/100= Rs. 27,20,000.

Here Long Term Capital Gain will be sale value (-) Indexed cost of acquisition (-) Indexed cost of improvement and (-) Exps.

Frequently Asked Question- FAQs

  1. What is the indexation rate for FY 2020-21?

    The Cost Inflation Index For the financial year 2020-21 has been notified by the Central Board of Direct Tax (CBDT) as 301 for determining long-term capital gains under Income Tax. The notification is dated 20th June 2020. For the previous year i.e. for FY 2019-20, it was 289.

  2. How do you calculate capital gain indexation?

    Mr. Kiyaan purchased a flat in FY 2001-02 for Rs. 10 Lakh. He sells the same flat in FY 2017-18. Now the question is what will be the indexed cost of acquisition.

    In this case, as per the above-mentioned chart, the CII for the years 2001-02 and 2017-18 is 100 and 271 respectively. Hence, the Indexed cost of acquisition will be 10,00,000*272/100= Rs. 27,20,000.

    Here Long Term Capital Gain will be sale value (-) Indexed cost of acquisition (-) Indexed cost of improvement and (-) Exps.

  3. What is the cost inflation index for the financial year 2021-22?

    The Cost Inflation Index For the financial year 2021-22 has been notified by the Central Board of Direct Tax (CBDT) as 317 for determining long-term capital gains under Income Tax. The notification is dated 15th June 2021. For the previous year i.e. for FY 2020-21, it was 301.

  4. What is the cost inflation index for the previous year 2020-21?

    The Cost Inflation Index For the financial year 2020-21 has been notified by the Central Board of Direct Tax (CBDT) as 301 for determining long-term capital gains under Income Tax. The notification is dated 20th June 2020. For the previous year i.e. for FY 2019-20, it was 289.

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

Feedback/Suggestion- Hope you all find it useful, please give your valuable feedback & let us know if there is an error. Thanks in Advance

Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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