Cost Inflation Index | How to Calculate Cost of Indexation | Examples

Amendment made by the Finance Bill 2017: Shifting base year from 1981 to 2001 for computation of capital gains (section 55) w.e.f. A.Y. 2018-19.

The finance bill 2017 has amended section 55 of the ACT so as to provide that the cost of acquisition of an asset acquired before 1-4-2001 shall be allowed to be taken as fair market value as on 1-4-2001 or the actual cost of the asset as cost of acquisition and consequently the cost of improvement shall include only those capital expenses which are incurred on or after 1-4-2001.

In the case of long-term capital gains, indexed cost of acquisition and indexed cost of improvement are deducted.

So how to calculate indexed cost of acquisition and indexed cost of improvement. The answer is with the help of cost inflation index. The following table contain cost inflation index up to F.Y. 2016-17.

Cost inflation index (CII) as notified by the central government is as under.

Cost Inflation Index From 1981-82 to 2016-17

F.Y. CII F.Y. CII
1981-82 100 1999-00 389
1982-83 109 2000-01 406
1983-84 116 2001-02 426
1984-85 125 2002-03 447
1985-86 133 2003-04 463
1986-87 140 2004-05 480
1987-88 150 2005-06 497
1988-89 161 2006-07 519
1989-90 172 2007-08 551
1990-91 182 2008-09 582
1991-92 199 2009-10 632
1992-93 223 2010-11 711
1993-94 244 2011-12 785
1994-95 259 2012-13 852
1995-96 281 2013-14 939
1996-97 305 2014-15 1024
1997-98 331 2015-16 1081
1998-99 351 2016-17 1125

How to calculate indexed cost of acquisition?

To calculate indexed cost of acquisition, you have to follow three points as given below.

  • Cost of acquisition (Your purchase price of property)
  • Cost Inflation Index of Previous Year in Which the Asset is Transferred (When Property Sold Out)
  • Cost Inflation Index of the year in which the asset was first held by the assessee or. 1.4.1981 (now 1-4-2001 w.e.f. F.Y. 2017-18) (whichever is later)

Now to calculate indexed cost of acquistion, use the following formula.

Cost of Acquistion (Purchase Price)  x CII of the year of transfer / CII of the year acquisition = Indexed cost of acquisition

Example to understand Cost of Inflation Index

  • A purchased a plot on 4-1-1978 for Rs.1,00,000/-
  • The land was sold by A on 1-6-2016 for Rs.18,00,000/-
  • The expenses on transfer were 2% of the sale price
  • The market value of the land as on 1-4-1981 was Rs. 1,20,000/-
Sale Consideration 18,00,000/-
Less: Expenses on Transfer     36,000/-
Indexed cost of acquisition – 1,20,000 x 1125 / 100 =

  • CII of F.Y. 2016-17 is 1125
  • CII of F.Y. 1981-82 is 100
13,50,000/-

 

 

13,86,000/-

 

 

Long-term capital gain 4,14,000/-

 

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5 Comments

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  1. Ashok Kumar Sharma

    Which ITR to use for showing income from Infra bonds redeemable after 5yrs?

  2. hi i would like to know how much income tax i need to pay if i sell plot of mine for rupees 50 lakh..which i purchased in 2009 for rupees 10 lakh

  3. If the immovable property is purchased well before the base reference year how to calculate the cost inflation index applicable to property if it is to be sold now

  4. I have incurred following costs on my residential property which I may want to sell soon.
    Cost – 6 lacs in 1997 – 98
    Maintenance paid to Society – about Rs.700/- pm for 18 years
    Registration cost – about Rs.1.0 lac in 2009
    What will be my exemption limit on sale value for assessment of tax. It may sell for about 40lacs now.

    1. Mr. Anis,

      Whatever the cost of purchase may be, your CII will be

      Cost of Purchase X CII of Year of Sale made / CII of Year of Purchase

      like wise

      Cost of Improvement X CII of Year of Sale made / CII of Year of Improvement made

      after arriving the same, you can claim deduction of registration charges too

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