Cost Inflation Index

We all know Inflation as General raise in prices of goods and services over a period of time, which results in decreasing the purchasing power of money which inturn makes the things become costly, In other words the value of rupee today is not equal to the value of rupee tomorrow.

Over the period of time the value of assets increases and when the assets are sold the income  is subject to tax, the raise of price can be due to inflation or due to appreciation in the value of Asset, so the raise of price by inflation has to be removed from the sale price to know what is the actual increase in value of the asset to treat it as a gain and to pay Income Tax on the Profit. 

How Is Inflation Cost Calculated ? 

The Inflation cost calculation can be easily explained with an example as follows 

Example :- Suppose if you purchase a house in Jan 2000 at a price of  Rs. 10,00,000/- and sold the house at a price of 60,00,000/- on June 2016 and it is simple to say that your profit is 50 Lakhs (60 L - 10 L) and you have to pay tax on your profit as capital gains.

Now here comes the question why the price has raised?

• Is it because of general raise in prices or 
• By increase in the value of asset.

The answer is both, with the time the price of the value of the Asset has been Increased with Inflation and with appreciation in the value of Asset, and the Indexed cost can be calculated as follows.

From the above example the Purchase value of the asset is Rs. 10,00,000/- and the sale Value of the Asset is Rs. 60,00,000/-  Indexed cost of the asset can be found by the Given Formula 

Indexed Cost = [Purchase price of Asset * CII at the time of Sale*]

                                        CII at the time of purchase*

                      =    [10,00,000 * 1125] 

                                        389

                      =     28,92,030/-

The Profit subject to Tax is (Sale Price less Indexed Cost) which comes to Rs. 3,107,970/-

*The CII can be taken from the below chart. 

The CBDT (Central Board of Direct Taxes) Issues Notification for the CII rate every year the cost of inflation has to be calculated by taking the CBDT rate as base.

The Cost Inflation Index From 1981 Onwards

Financial Year	CII	Financial Year	CII
Before 1/4/1981	100	2000-01	406
1981-82	100	2001-02	426
1982-83	109	2002-03	447
1983-84	116	2003-04	463
1984-85	125	2004-05	480
1985-86	133	2005-06	497
1986-87	140	2006-07	519
1987-88	150	2007-08	551
1988-89	161	2008-09	582
1989-90	172	2009-10	632
1990-91	182	2010-11	711
1991-92	199	2011-12	785
1992-93	223	2012-13	852
1993-94	244	2013-14	939
1994-95	259	2014-15	1024
1995-96	281	2015-16	1081
1996-97	305	2016-17	1125
1997-98	331
1998-99	351
1999-00	389