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Capital Gains & Cost Inflation Index

The document introduces the concept of indexed cost as it relates to calculating capital gains for tax purposes in India. Indexed cost allows taxpayers to account for inflation by adjusting the purchase cost of an asset based on the cost inflation index for the year of sale versus the year of acquisition. This results in a lower amount of long-term capital gains being taxed compared to using the historical cost. The example shows how indexed cost is calculated using the cost inflation index, and how it reduces the taxable capital gains.

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7K views1 page

Capital Gains & Cost Inflation Index

The document introduces the concept of indexed cost as it relates to calculating capital gains for tax purposes in India. Indexed cost allows taxpayers to account for inflation by adjusting the purchase cost of an asset based on the cost inflation index for the year of sale versus the year of acquisition. This results in a lower amount of long-term capital gains being taxed compared to using the historical cost. The example shows how indexed cost is calculated using the cost inflation index, and how it reduces the taxable capital gains.

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NEW - COST INFLATION INDEX BASE YEAR 01.04.

2001:

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 2001-02 for Rs 25 lakh were to be


sold in F.Y. 2015 -16 for Rs 90 lakh, indexed cost = (254/100) x 25 lakh = Rs
63.50 lakh. And the long-term capital gains would be Rs 26.5 lakh, that is
Rs 90 lakh less 63.5 lakh.

Cost Inflation Index


Cost inflation index
(CII)as notified by Central
Government

Financial Year (CII)

2001-2002 100
2002-2003 105
2003-2004 109
2004-2005 113
2005-2006 117
2006-2007 122
2007-2008 129
2008-2009 137
2009-2010 148
2010-2011 167
2011-2012 184
2012-2013 200
2013-2014 220
2014-2015 240
2015-2016 254
2016-2017 264

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