Cost Inflation
Index is a measure of inflation that finds application in tax law, when
computing long-term capital gains on sale of assets.
Capital gain arises
when the net sale consideration of a capital asset is more than the cost.
Since “cost of
acquisition” is historical, the concept of indexed cost allows the taxpayer to
factor in the impact of inflation on cost. Consequently, a lower amount of
capital gains gets to be taxed than if historical cost had been considered in
the computations.
Formula for
computing indexed cost is (Index for the year of sale/ Index in the year of
acquisition) x cost.
For example, if
a property purchased in 1991-92 for Rs 20 lakh were to be sold in A.Y.
2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh. And the
long-term capital gains would be Rs 21.51, that is Rs 80 lakh minus Rs 58.49
lakh.
Cost Inflation
Index:- Cost inflation
index (CII)as notified by Central Government along with analysis of the same is
as under:
|
FINANCIAL YEAR
|
COST INFLATION INDEX
|
Increase in CII and 75% of percentage of real inflation
allowed
|
Real inflation % of CII Increase allowed / 3 X 4
|
|
1981-1982
|
100
|
||
|
1982-1983
|
109
|
9 = 9%
|
12%
|
|
1983-1984
|
116
|
7= 6.422
|
8.56%
|
|
1984-1985
|
125
|
9=7.7586
|
10.34%
|
|
1985-1986
|
133
|
8=6.4
|
8.53%
|
|
1986-1987
|
140
|
7=5.263
|
7.02%
|
|
1987-1988
|
150
|
10=7.1428%
|
9.52%
|
|
1988-1989
|
161
|
11=7.333%
|
9.78%
|
|
1989-1990
|
172
|
11=6.8323%
|
9.11%
|
|
1990-1991
|
182
|
10=5.8139%
|
7.75%
|
|
1991-1992
|
199
|
17=9.340%
|
12.45%
|
|
1992-1993
|
223
|
24=12.060%
|
16.08%
|
|
1993-1994
|
244
|
21=9.4170%
|
12.56%
|
|
1994-1995
|
259
|
15=6.1475%
|
8.20%
|
|
1995-1996
|
281
|
22=8.494%
|
11.33%
|
|
1996-1997
|
305
|
24=8.5409%
|
11.39%
|
|
1997-1998
|
331
|
26=7.8549%
|
10.47%
|
|
1998-1999
|
351
|
20=6.0423%
|
8.06%
|
|
1999-2000
|
389
|
38=10.826%
|
14.44%
|
|
2000-2001
|
406
|
17=4.370%
|
5.83%
|
|
2001-2002
|
426
|
20=4.926%
|
6.57%
|
|
2002-2003
|
447
|
21=4.93%
|
6.57%
|
|
2003-2004
|
463
|
16=3.58%
|
4.77%
|
|
2004-2005
|
480
|
17=3.67%
|
4.90%
|
|
2005-2006
|
497
|
17=3.54%
|
4.72%
|
|
2006-2007
|
519
|
22=4.43%
|
5.90%
|
|
2007-2008
|
551
|
32=6.17%
|
8.22%
|
|
2008-2009
|
582
|
31=5.62%
|
7.50%
|
|
2009-2010
|
632
|
50=8.60%
|
11.46%
|
|
2010-2011
|
711
|
79=12.36%
|
16.49%
|
|
2011-12
|
785
|
74=10.41%
|
13.88%
|
|
2012-13
|
852
|
67 = 8.54%
|
11.38%
|
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