Cost Inflation Index

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The Cost Inflation Index

The Cost Inflation Index (CII) is an important metric used in India to calculate the inflation-adjusted cost of an asset for tax purposes, particularly in capital gains tax calculations. Here are the full details about CII:

What is the Cost Inflation Index (CII)?

The CII is a measure that reflects the inflation rate over a period of time, allowing taxpayers to account for inflation when calculating the capital gains on the sale of assets. It is published annually by the Income Tax Department of India.

Purpose of CII

  1. Adjusting Capital Gains: CII helps in adjusting the purchase price of an asset for inflation when calculating the long-term capital gains (LTCG) tax.
  2. Tax Relief: It allows taxpayers to pay tax only on the real gains rather than nominal gains, which might be inflated due to inflation.

Calculation of Capital Gains

When calculating long-term capital gains, the following formula is used:

Long-Term Capital Gain=Sale Price−(Cost Price×CII for Year of SaleCII for Year of Purchase)\text{Long-Term Capital Gain} = \text{Sale Price} – \left(\text{Cost Price} \times \frac{\text{CII for Year of Sale}}{\text{CII for Year of Purchase}}\right)

CII Values

The CII is released each financial year and is used for the calculation of capital gains. Below are the CII values for select financial years:

Financial YearCII Value
2001-02100
2002-03105
2003-04109
2004-05113
2005-06117
2006-07122
2007-08129
2008-09137
2009-10148
2010-11167
2011-12184
2012-13220
2013-14220
2014-15254
2015-16254
2016-17264
2017-18272
2018-19280
2019-20289
2020-21301
2021-22317
2022-23331
2023-24348

How to Use CII

  1. Identify the Year of Purchase: Determine the year in which the asset was purchased.
  2. Identify the Year of Sale: Determine the year in which the asset was sold.
  3. Apply the CII Values: Use the CII values from the table to adjust the cost of the asset as per the formula provided above.

Additional Considerations

  • Residential Property: For residential properties, the calculation of CII plays a significant role in reducing the taxable capital gains when the property is sold after a long holding period.
  • Assets: CII applies to various assets, including real estate, shares, and mutual funds.

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