Cost Inflation Index notified for FY 2015-16

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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%
RECOMMENDED READ  Income Tax Calculator for FY 2014-15


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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