Cost Inflation Index: CII Income Tax

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Sakshi Shah

CII
Cost Inflation Index
Indexation
Long Term Capital Gain
Last updated on February 29th, 2024

Inflation results in rising prices which reduces the purchasing power of money. It is important to calculate the rise in the cost of goods or services each year due to the effect of inflation. Thus, the taxpayer can take the benefit of indexation to compute the cost of acquisition to calculate Capital Gains Tax. The Indexed Cost is the cost after adding the effect of inflation of each financial year. Thus, the Cost Inflation Index i.e. CII helps to estimate the increase in prices each year due to the effect of inflation. The Income Tax Department notifies CII for each financial year.

Cost Inflation Index: Meaning

Cost Inflation Index i.e. CII is the index used for calculating the cost of acquisition or improvement after applying the effect of inflation over the financial years.

CII = 75% of the average rise in the Consumer Price Index (CPI) for the immediately preceding year

Consumer Price Index computes the rise in prices by comparing the current price of a basket of goods and services with the cost of such a basket in the previous year.

The Central Government publishes CII in the official gazette. The Cost Inflation Index for FY 2022-23 (AY 2023-24) is 331 as per the notification dated 14th June 2022 – CBDT Notification.

Cost Inflation Index Chart

The Income Tax Department has notified the list of the Cost Inflation Index (CII) on its website.

Financial YearCII
2023-2024348
2022-2023331
2021-2022317
2020-2021301
2019-2020289
2018-2019280
2017-2018272
2016-2017264
2015-2016254
2014-2015240
2013-2014220
2012-2013200
2011-2012184
2010-2011167
2009-2010148
2008-2009137
2007-2008129
2006-2007122
2005-2006117
2004-2005113
2003-2004109
2002-2003105
2001-2002100

Base Year in Cost Inflation Index

Base Year is the first year of the Cost Inflation Index with an index value of 100. The CII of all the other financial years is compared to the base year to calculate the increase in the percentage of inflation. If a taxpayer has purchased a capital asset before the base year, he/she can take the cost of acquisition as higher of the actual purchase price or FMV i.e. fair market value on the first day of the base year. The taxpayer can calculate the indexation on this cost of acquisition by using the CII of the base year. FMV is based on the valuation report of a registered valuer.

Change in Base Year of CII changed from 1981 to 2001

Prior to the Finance Act 2017, the base year was 1981-82 as per the Cost Inflation Index Chart to calculate indexation. However, the taxpayers were facing issues to get the valuation of the property purchased before 1st April 1981. Further, the tax authorities were not easily relying on the valuation reports. As a result, under the Finance Act 2017, the government shifted the base year from 1981 to 2001 for an easier and more accurate valuation. The Income Tax Department introduced the new Cost Inflation Index Chart with a revision in CII for all financial years. The new base year was now 2001-02 applicable from FY 2017-18.

How to calculate Long-Term Capital Gains with Indexation benefits?

Below is the calculation of Long Term Capital Gains with the benefit of indexation.

  Particulars
  Full Value of Consideration
Less Transfer Expenses
  Net Consideration
Less Indexed Cost of Acquisition
Less Indexed Cost of Improvement
  Long-Term Capital Gains

How to calculate the Indexed Cost of Acquisition and Indexed Cost of Improvement?

The Indexed Cost of Acquisition is the calculation of the cost of acquisition by applying the indexation benefit to compute Long Term Capital Gains.

Indexed Cost of Acquisition = Cost of Acquisition * (CII for the year of sale / CII for the year of purchase)

The Indexed Cost of Improvement is the calculation of the cost of improvement by applying the indexation benefit to compute Long Term Capital Gains.

Indexed Cost of Improvement = Cost of Improvement * (CII for the year of sale / CII for the year of improvement)

Note:

Example to calculate Indexed Cost of Acquisition

Mr. A purchased a flat in FY 2018-19 for INR 50,00,000. He sells the flat in FY 2021-22 for INR 80,00,000. Calculate the Capital Gain.

Since the flat is sold after 24 months from purchase, it is a long-term capital asset. Thus, the benefit of indexation is available for the calculation of Long Term Capital Gains as per Section 112 of Income Tax Act.

CII for 2018-19 = 280
CII for 2021-22 = 317

Indexed Cost of Acquisition = 50,00,000 * (317/280) = INR 56,60,714

LTCG = 80,00,000 – 56,60,714 = INR 23,39,286

Example to calculate Indexed Cost of Acquisition using Base Year

Mr. B purchased a property in FY 1994-95 for INR 30,00,000. He sells the same in FY 2014-15 for INR 1,30,00,000. The FMV of the property on 1st April 2001 was INR 50,00,000. Calculate the Capital Gain.

Since the immovable property is sold after 24 months from purchase, it is a long-term capital asset. Thus, the benefit of indexation is available for the calculation of Long Term Capital Gains as per Section 112 of the Income Tax Act.

CII for 2014-15 = 240
CII for 2001-02 = 100

Cost of Acquisition = higher of actual purchase value or FMV as on 1.4.2001 = INR 50,00,000
Indexed Cost of Acquisition = 50,00,000 * (240/100) = INR 1,20,00,000

LTCG = 1,30,00,000 – 1,20,00,000 = INR 10,00,000

FAQs

What is the CII i.e. Cost Inflation Index for FY 2022-23?

CII i.e. Cost Inflation Index is issued by the income tax department for each financial year. The CBDT notified Cost Inflation Index i.e. CII for FY 2022-23 as 331 via a notification dated 14th June 2022. Cost Inflation Index Chart for all financial years is available on the website of the income tax department. Taxpayer can use CII to compute indexed cost of acquisition and indexed cost of improvement for the calculation of LTCG.

What is the CII i.e. Cost Inflation Index for FY 2021-22?

CII i.e. Cost Inflation Index is issued by the income tax department for each financial year. The CBDT notified Cost Inflation Index i.e. CII for FY 2021-22 as 317 via a notification dated 15th June 2021. Cost Inflation Index Chart for all financial years is available on the website of the income tax department. Taxpayers can use CII to compute the indexed cost of acquisition and indexed cost of improvement for the calculation of LTCG.

How to calculate Indexed Cost of Acquisition if the asset was purchased before 1st April 2001 i.e. FY 2001-02?

If the taxpayer has purchased the capital asset before 1.4.2001, he/she must use the CII of the base year to compute the indexation. Further, the cost of acquisition would be higher of the actual purchase value and FMV of the capital asset as of 1st April 2001. FMV can be derived from the valuation report prepared by a registered valuer.

Got Questions? Ask Away!

  1. Hi @FalconZex

    1. Yes you are right the tax payable shall be 10,000 INR
    2. Rebate is applicable on total tax liability Section 87A does not exclude any income specifically.
    3. In such a case no rebate shall be available. The tax rate shall be as under:
    • On business income of 2 lakhs INR: 5%

    • On STCG of 2 lakhs INR: 15%

    You can also refer to our Income Tax Calculator

  2. I have income Short Term and Long term Capital gains and “Income from other sources” (Bank interest and Dividend). Also, I have investments in 80C, 80D, 80CCD.
    Are the investments in 80C, 80D, 80CCD considered for tax deduction?
    For example if income from other source is 1 lac and 80C investment is 1lac, will this 1 lac be exempt?
    STCG is 3.5lac, so 15% will be applicable on 1 lac. as 2.5 lacs is exempt.
    so i pay tax only 15% of 1 lac which is Rs.15000.
    please assist

  3. Hey @Yasmin_Menon

    Your are absolutely correct.

    Deductions, if any, will be reduced from your Income taxable at slab rates.
    The un-exhausted part of the basic exemption limit of 2.5 lakhs will be reduced from you Capital Gains.

    So, in the above case you’ll have to pay 15% tax on 1 lakh.

    However, if your taxable income after deductions is upto 5 lakhs, you’re eligible for rebate (12.5k) under section 87A.

    Hope this helps. :slight_smile:

  4. Just to reconfirm,
    income from other source (FD Interest and dividend) is 1 lac and 80C investment is 1lac, will this 1 lac be exempt and will not be calculated under taxable income?

  5. Yes, this 1 lac will not be taxable after deductions.

  6. Hey @Yasmin_Menon

    Deductions under Chapter VI-A can be claimed against taxable incomes. Based on your data, here is a calculation:

    Gross Total Income = 1 lac (IFOS) + 3.5 lac (STCG) = 4.5 lac
    Deduction 80C = 1 lac
    Total Income = 3.5 lac
    Special Rate Income = 3.5 lac
    Adjusted against basic exemption limit = 2.5 lac
    Taxable Special Rate Income (STCG) = 1 lac
    Tax on STCG = 15% of 1 lac = 15,000
    Rebate u/s 87A = 12,500
    Net Tax Liability = 2,500
    Cess = 4% of 2,500 = 100
    Total Tax Liability = 2,600

  7. Hey @click2vikash

    Here’s how you’ll be taxed under the Old Regime:

    Total Income = 11 lacs
    Income Taxable at Slab rates = 10 lacs
    Income Taxable at Specified rates = 1 lakh

    Tax on Slab Rate Income = 1,12,500
    Tax on STCG = 15,000

    Total Income Tax = 1,27,500
    HEC = 5100
    Total Tax Liability = 1,32,600

    Hope this helps :slight_smile:

  8. I bought shares worth INR 70,000 in 2017 which are now worth around INR 1,80,000. It is long term capital gains, how much tax do I have to pay?

  9. To differentiate capital gains into long term and short term the period is 36 months and 12 months - which one to consider?

  10. Hey @Tanmay_mehta,

    In Budget 2018, the grandfathering rule was announced u/s 112A which implies that - long term capital gains above INR 1 Lakh will be taxed at 10% after 1st Feb 2018.
    Therefore to calculate LTCG:

    • Take the equity value as on 31st Jan 2018 to be X
    • so LTCG = Sales price - value as on 31st Jan 2018
    • LTCG = 1,80,000 - X

    Any tax on LTCG will be 10% above INR 1 Lakh

    • LTCG below INR 1 Lakh is fully exempt
    • LTCG above INR 1 Lakh will be taxable at 10% for the amount above INR 1 Lakh only.

    Hope this helps!

    Refer to our learn article on LTCG on sale of Equity Shares and Equity Mutual funds

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