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.
What is the Cost Inflation Index?
The price of goods increases from time to time, resulting in a fall in the purchasing power of money. e.g. if two units of any goods could be bought for Rs. 100 today, tomorrow only one unit might be available for Rs. 100 due to inflation. Cost Inflation Index (CII) is used to estimate the increase in the price of goods and assets year by year due to inflation.
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.
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. Cost Inflation Index Chart with new cost value (New CII) and Cost Inflation Index Chart with old cost value (Old CII).
Also Read:- Meaning of Capital Assets- Definition, Example, and its Types
Cost Inflation Index Chart with New CII
Cost inflation index chart from FY 2001-02 to FY 2020-21
| Financial Year | CII | Financial Year | CII |
|---|---|---|---|
| 2001-02 (Base Year) | 100 | 2012-13 | 200 |
| 2002-03 | 105 | 2013-14 | 220 |
| 2003-04 | 109 | 2014-15 | 240 |
| 2004-05 | 113 | 2015-16 | 254 |
| 2005-06 | 117 | 2016-17 | 264 |
| 2006-07 | 122 | 2017-18 | 272 |
| 2007-08 | 129 | 2018-19 | 280 |
| 2008-09 | 137 | 2019-20 | 289 |
| 2009-10 | 148 | 2020-21 | 301 |
| 2010-11 | 167 | 2021-22 | 317 |
| 2011-12 | 184 | www.newtaxroute.com |
Cost Inflation Index Chart with Old CII
Cost inflation index chart from FY 1981-82 to FY 2016-17
| Financial Year | CII | Financial Year | CII |
|---|---|---|---|
| 1981-82 (Base Year) | 100 | 2000-01 | 406 |
| 1982-83 | 109 | 2001-02 | 426 |
| 1983-84 | 116 | 2002-03 | 447 |
| 1984-85 | 125 | 2003-04 | 463 |
| 1985-86 | 133 | 2004-05 | 480 |
| 1986-87 | 140 | 2005-06 | 497 |
| 1987-88 | 150 | 2006-07 | 519 |
| 1988-89 | 161 | 2007-08 | 551 |
| 1989-90 | 172 | 2008-09 | 582 |
| 1990-91 | 182 | 2009-10 | 632 |
| 1991-92 | 199 | 2010-11 | 711 |
| 1992-93 | 223 | 2011-12 | 785 |
| 1993-94 | 244 | 2012-13 | 852 |
| 1994-95 | 259 | 2013-14 | 939 |
| 1995-96 | 281 | 2014-15 | 1024 |
| 1996-97 | 305 | 2015-16 | 1081 |
| 1997-98 | 331 | 2016-17 | 1125 |
| 1998-99 | 351 | ||
| 1999-00 | 389 | www.newtaxroute.com |
Also Read:- Capital Gain Tax Rate- Short Term – Long Term Capital Gain
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 Indexed cost of acquisition
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
Following points needs 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.
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
-
What is the Cost Inflation Index For FY 2020-21?
The cost indexation rate for FY 2020-21 is 301.
-
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.
-
What is the cost inflation index for the previous year 2019-20?
The cost indexation rate for the previous year 2019-20 is 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.
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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)