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According to clause v of section 48 of the Income Tax Act 1961, Cost Inflation Index means an index as notified by the Central Government in the Official Gazette, having regard to seventy-five percent of average rise in the Consumer Price Index(urban) for the immediately preceding previous year to such previous year.

Cost Inflation Index finds its application while computing long-term capital gain on the sale of assets. A capital gain arises when the net sale consideration is more than the cost of acquisition. However, the cost of acquisition is a historical cost. Due to inflation, the cost of the asset would have changed at the time of sale of the asset. In order to consider the effect of inflation on the cost of acquisition of the asset, the cost is factored by the Cost inflation index. Consequently, a lower amount of capital gain gets taxed.

Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost.

Let us understand it with the help of an example-

If a property purchased in the F.Y 2002-03 for Rs 20 lakh were to be sold in F.Y. 2018-19 for Rs 80 lakh, indexed cost = (280/105) x 20 = Rs 53.33 lakh. And the long-term capital gains would be Rs 26.67, i.e. Rs 80 lakh minus Rs 53.33 lakh.

Cost Inflation Index from Financial Year 2001-02 to Financial Year 2021-22

In order to revise the base year for computation of capital gains, Section 55 of the Income Tax Act, 1961 was amended vide Finance Act, 2017 so as to provide that the cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as fair market value as on 1st April, 2001 and the cost of improvement shall include only those capital expenses which are incurred after 01.04.2001. Cost inflation index for Long Term Capital Assets sold after 01.04.2017 as notified by CBDT Notification No. 44/2017 dated 05.06.2017 is given below -

What is Cost Inflation Index

SI. No.

Financial Year

Cost Inflation Index

1

2001-02

100

2

2002-03

105

3

2003-04

109

4

2004-05

113

5

2005-06

117

6

2006-07

122

7

2007-08

129

8

2008-09

137

9

2009-10

148

10

2010-11

167

11

2011-12

184

12

2012-13

200

13

2013-14

220

14

2014-15

240

15

2015-16

254

16

2016-17

264

17

2017-18

272

18

2018-19

280

19

2019-20

289

20

2020-21

301

21

2021-22

317

 

Cost Inflation Index As Applicable From Financial Year 1981-82 To Financial Year 2016-17

Sl. No.

Financial Year

Cost Inflation Index

1

1981-1982

100

2

1982-1983

109

3

1983-1984

116

4

1984-1985

125

5

1985-1986

133

6

1986-1987

140

7

1987-1988

150

8

1988-1989

161

9

1989-1990

172

10

1990-1991

182

11

1991-1992

199

12

1992-1993

223

13

1993-1994

244

14

1994-1995

259

15

1995-1996

281

16

1996-1997

305

17

1997-1998

331

18

1998-1999

351

19

1999-2000

389

20

2000-2001

406

21

2001-2002

426

22

2002-2003

447

23

2003-2004

463

24

2004-2005

480

25

2005-2006

497

26

2006-2007

519

27

2007-2008

551

28

2008-2009

582

29

2009-2010

632

30

2010-2011

711

31

2011-2012

785

32

2012-2013

852

33

2013-2014

939

34

2014-2015

1024

35

2015-2016

1081

36

2016-2017

1125

 

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Category Income Tax, Other Articles by - Neethi V. Kannanth 



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