The cost inflation index (CII) is used to calculate the indexed cost of acquisition and indexed cost of improvement for the purpose of determining long-term capital gains. The CII is a measure of inflation as notified by the government and is used to adjust the cost of an asset for inflation over the holding period.
To calculate the indexed cost of acquisition or indexed cost of improvement, you need the following information:
- Year of Purchase: This is the year in which you acquired the asset.
- Year of Sale: This is the year in which you are selling the asset.
- Cost Inflation Index: This is the CII for the year of purchase and the year of sale. The government notifies the CII for each financial year.
- Cost of Acquisition/Improvement: This is the actual cost of acquiring or improving the asset.
- Fair Market Value (FMV) as on 1st April 2001: This is applicable if you purchased the asset before the year 2001 or if it is an ancestral property. In such cases, you would need to determine the FMV of the asset as on 1st April 2001.
The indexed cost of acquisition is calculated by multiplying the cost of acquisition with the CII of the year of sale and dividing it by the CII of the year of purchase. Similarly, the indexed cost of improvement is calculated using the CII of the year of improvement.
The indexed cost of acquisition and indexed cost of improvement are used to calculate the long-term capital gains by deducting them from the sale proceeds. This helps adjust the cost of the asset for inflation and provides a more accurate calculation of the taxable capital gains.
Read Detailed Capital Gain Taxation: https://taxupdates.cagurujiclasses.com/capital-gain-detailed-explanation-with-tax-rates-and-examples/#more-623
NOTIFIED COST INFLATION INDEX UNDER SECTION 48, EXPLANATION (V)
As per Notification 21/2023, dated 10-04-2023, the following table should be used for the Cost Inflation Index :-
| Sl. No. | Financial Year | Cost Inflation Index |
| (1) | (2) | (3) |
| 1 | 2001-02 | 100 |
| 2 | 2002-03 | 105 |
| 3 | 2003-04 | 109 |
| 4 | 2004-05 | 113 |
| 5 | 2005-06 | 117 |
| 6 | 2006-07 | 122 |
| 7 | 2007-08 | 129 |
| 8 | 2008-09 | 137 |
| 9 | 2009-10 | 148 |
| 10 | 2010-11 | 167 |
| 11 | 2011-12 | 184 |
| 12 | 2012-13 | 200 |
| 13 | 2013-14 | 220 |
| 14 | 2014-15 | 240 |
| 15 | 2015-16 | 254 |
| 16 | 2016-17 | 264 |
| 17 | 2017-18 | 272 |
| 18 | 2018-19 | 280 |
| 19 | 2019-20 | 289 |
| 20 | 2020-21 | 301 |
| 21 | 2021-22 | 317 |
| 22 | 2022-23 | 331 |
| 23 | 2023-24 (provisional) | 348 |
[As amended by Finance Act, 2023]
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