Cost Inflation Index notified for FY 2015-16

What is Cost Inflation Index (CII)?

It is a measure of inflation that finds application in tax law, when computing long-term capital gains on sale of assets. Section 48 of the Income –Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 percent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year. Therefore, if we consider that price of a capital assets has risen in tandem with base price rise, than if one want to sell an asset and replace it, the cost allowed even after indexation will be lesser than the price payable for new asset. However, in case of many capital asset the price rise is lesser than market price and in many cases it is higher. How does CII help in capital gains computation? Capital Gain, as you know, 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 get to be taxed than if historical cost had been considered in the computation.

How to Calculate Index Cost Capital gain:

Here is an Example

Purchase Price	830000
Year of Purchase	2000
Sale Price	3500000
Year of Sale	2013
No of Years	13
Purchase CII	406
Sale CII	860
Indexed Purchase Price	1758128
Capital Gain	4088670
Tax with Indexation	534000
Tax without Indexation	267000
Tax rate with Indexation	20.00%
Tax rate without Indexation	10.00%

Cost Inflation Index Chart:- Cost Inflation Index (CII) as notified by Central Government along-with analysis of the same is under:-

Financial Year            Cost Inflation Index

1981-82                                   100     

1982-83                                   109

1983-84                                   116     

1984-85                                   125

1985-86                                   133

1986-87                                   140

1987-88                                   150

1988-89                                   161

1989-90                                   172

1990-91                                   182

1991-92                                   199

1992-93                                   223

1993-94                                   244

1994-95                                   259

1995-96                                   281

1996-97                                   305

1997-98                                   331     

1998-99                                   351

1999-00                                  389

2000-01                                  406

2001-02                                  426

2002-03                                 447

2003-04                                 463

2004-05                                 480

2005-06                                 497

2006-07                                 519

2007-08                                 551

2008-09                                582

2009-10                                 632

2010-11                                  711
2011-12                                  785 
2012-13                                 852
2013-14                                 939
2014-15                                 1024
2015-16                                 1081

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