Understanding Cost Inflation Index (CII) in Simple Terms

Cost Inflation Index (CII) is a number used to calculate the long-term capital gain tax on the sale of assets. It is announced by the Central Board of Direct Taxes (CBDT) every year.

What is CII?

• Meaning: CII measures inflation to help calculate tax on long-term capital gains.
• Use: It adjusts the purchase cost of an asset to reflect inflation, making the taxable gain smaller.
• Definition: Under Section 48 of the Income-Tax Act, the government decides the CII based on 75% of the rise in the consumer price index (CPI) for urban non-manual workers from the previous year.

CII From 2001-02 to 2024-25

Note: The base year for calculating capital gains was updated to 2001-02. Costs before this year are considered based on the market value on April 1, 2001.

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
22	2022-23	331
23	2023-24	348
24	2024-25	363

Examples of Calculating Capital Gain Using CII

Example 1

• Purchase Year (2005-06): CII = 117, Cost = ₹5 lakh
• Sale Year (2020-21): CII = 301, Sale Price = ₹20 lakh

Indexed Cost Calculation:

$$\text{Indexed Cost}=\left(\frac{301}{117}\right)\times 5=\text{₹}12.88\text{ lakh}$$

Capital Gain Calculation:

$$\text{Capital Gain}=\text{₹}20\text{ lakh}-\text{₹}12.88\text{ lakh}=\text{₹}7.12\text{ lakh}$$

Impact on Capital Gain: Using CII, the purchase cost is adjusted to ₹12.88 lakh from the original ₹5 lakh, significantly reducing the taxable gain from ₹15 lakh (without CII) to ₹7.12 lakh.

Example 2

• Purchase Year (2012-13): CII = 200, Cost = ₹15 lakh
• Sale Year (2023-24): CII = 348, Sale Price = ₹40 lakh

Indexed Cost Calculation:

$$\text{Indexed Cost}=\left(\frac{348}{200}\right)\times 15=\text{₹}26.1\text{ lakh}$$

Capital Gain Calculation:

$$\text{Capital Gain}=\text{₹}40\text{ lakh}-\text{₹}26.1\text{ lakh}=\text{₹}13.9\text{ lakh}$$

Impact on Capital Gain: With CII, the purchase cost is adjusted to ₹26.1 lakh from ₹15 lakh, reducing the taxable gain from ₹25 lakh (without CII) to ₹13.9 lakh.

Example 3

• Purchase Year (2008-09): CII = 137, Cost = ₹8 lakh
• Sale Year (2021-22): CII = 317, Sale Price = ₹25 lakh

Indexed Cost Calculation:

$$\text{Indexed Cost}=\left(\frac{317}{137}\right)\times 8=\text{₹}18.49\text{ lakh}$$

Capital Gain Calculation:

$$\text{Capital Gain}=\text{₹}25\text{ lakh}-\text{₹}18.49\text{ lakh}=\text{₹}6.51\text{ lakh}$$

Impact on Capital Gain: Adjusting the purchase cost to ₹18.49 lakh from ₹8 lakh reduces the taxable gain from ₹17 lakh (without CII) to ₹6.51 lakh.

Example 4

• Purchase Year (2010-11): CII = 167, Cost = ₹10 lakh
• Sale Year (2020-21): CII = 301, Sale Price = ₹30 lakh

Indexed Cost Calculation:

$$\text{Indexed Cost}=\left(\frac{301}{167}\right)\times 10=\text{₹}18.02\text{ lakh}$$

Capital Gain Calculation:

$$\text{Capital Gain}=\text{₹}30\text{ lakh}-\text{₹}18.02\text{ lakh}=\text{₹}11.98\text{ lakh}$$

Impact on Capital Gain: Using CII, the purchase cost is adjusted to ₹18.02 lakh from ₹10 lakh, lowering the taxable gain from ₹20 lakh (without CII) to ₹11.98 lakh.

These examples show how CII adjusts the purchase cost for inflation, significantly reducing the taxable capital gain.