Calculation of average inflation rate

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Kuldeep Singh Dhanai (Querist)
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14 January 2021 HI,
We used to pay increase in cost inflation from the m/o January, now as the base year changed from 2012 to 2016 from September 2020. How do we calculate the increase in cost inflation for the year 2020.
Thank you.
Kuldeep

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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06 July 2024 To calculate the increase in cost inflation index (CII) for the year 2020 using the new base year (2016), you can follow these steps:

1. **Identify the CII for Relevant Years**:
- Find the CII for the base year 2016 and the year of calculation (2020).
- The CII for the base year 2016 is 100.

2. **Obtain CII Values**:
- Look up the CII values published by the government or the appropriate authority for the relevant years. These are usually available on official websites or financial portals.

3. **Calculate the Increase in CII**:
- Determine the CII for the year 2020.
- Calculate the increase using the formula:
\[
\text{Increase in CII} = \left( \frac{\text{CII for 2020}}{\text{CII for base year 2016}} \right) \times 100
\]
For example, if the CII for 2020 is 120, then:
\[
\text{Increase in CII} = \left( \frac{120}{100} \right) \times 100 = 120\%
\]

4. **Use in Cost Inflation Adjustment**:
- Use this increase in CII to adjust costs or values based on inflation for tax purposes or financial calculations. It helps in adjusting the purchase price of assets, calculating long-term capital gains, and other inflation-related adjustments.

5. **Application**:
- Apply the adjusted CII values as per the new base year 2016 for any calculations or reporting required for financial or tax purposes from September 2020 onwards.

Ensure to verify the exact CII values applicable for the year 2020 and subsequent years from official sources to maintain accuracy in your calculations.

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