The Income Tax Department issues the Cost Inflation Index (CII) each year. It helps adjust the purchase cost of long-term capital assets (like property, stocks, etc.) for inflation. This adjustment is crucial because it ensures that when you sell an asset, the taxable gain reflects true economic profit and not just inflationary increases.
CII is used to calculate the taxable capital gain. To compute it, you have to first find the original purchase price of the asset and then adjust this price for inflation using the CII for the year you bought it and the year you sold it. After this, you have to subtract the adjusted purchase price from the sale price to get the taxable capital gain.
Furthermore, it must be noted that each year, the government announces the CII for the new financial year. For FY 2024-25, the CII is 363. You must be aware of these new values as they significantly influence your capital gain computations.
In this article, you will learn about the Cost Inflation Index in detail and see how it is computed and applied while making income tax calculations. Also, you will study the latest tax updates and check out a comprehensive list of CII numbers from 2001-02 to the current year.
Latest update for Cost Inflation Index (CII) on June 19, 2024
The Central Board of Direct Taxes (CBDT) has announced the Cost Inflation Index (CII) for the financial year 2024-25 (assessment year 2025-26) as 363. This notification was officially released on May 24, 2024. For comparison, the CII for the previous financial year 2023-24 (assessment year 2024-25) was set at 348.
What is the Cost Inflation Index?
The Cost Inflation Index is a numerical value that is calculated and assigned for each financial year by the Income Tax Department in India. It represents the inflation in the economy, due to which the costs of goods and services rise with time. A unique Cost Inflation Index is assigned to each financial year. The Cost Inflation Index (CII) serves as a tool to gauge the yearly escalation in the prices of goods and assets resulting from inflation. For the current financial year 2024-25, the CBDT has notified the CII as 363. The CII number for FY 2023-24 was 348.
Cost Inflation Index table from FY 2001-2002 to FY 2024-2025
The Income Tax Department assigns a new and unique CII value for each financial year based on the rate of inflation in the economy. Check out the Cost Inflation Index values for the years from from FY 2001-2002 to FY 2024-2025 in the table below.
Financial year |
Cost inflation index |
2024-25 |
363 |
2023-24 |
348 |
2022-23 |
331 |
2021-22 |
317 |
2020-21 |
301 |
2019-20 |
289 |
2018-19 |
280 |
2017-18 |
272 |
2016-17 |
264 |
2015-16 |
254 |
2014-15 |
240 |
2013-14 |
220 |
2012-13 |
200 |
2011-12 |
184 |
2010-11 |
167 |
2009-10 |
148 |
2008-09 |
137 |
2007-08 |
129 |
2006-07 |
122 |
2005-06 |
117 |
2004-05 |
113 |
2003-04 |
109 |
2002-03 |
105 |
2001-02 |
100 |
Also read: Income Tax Slabs for FY 2024-25
How is cost inflation index used in income tax?
The Indian government relies on the Cost Inflation Index (CII) as a pivotal measure to gauge annual inflation rates. This index plays a critical role in adjusting the purchase price of assets to account for inflation, ensuring equitable taxation practices in the domain of capital gains.
In practical terms, the CII is integrated into income tax calculations to adjust the asset's purchase price, accurately reflecting inflation's impact when computing capital gains tax. By incorporating the CII, taxpayers can offset the effects of inflation on their taxable gains, fostering a fairer taxation framework.
This adjustment, facilitated by the CII, has tangible implications for taxpayers' tax liabilities, particularly in the context of long-term capital gains. As the inflated purchase price reduces the taxable amount of capital gains, taxpayers experience a diminished tax burden on their long-term capital gains.
Formula to calculate the inflation-indexed purchase price
By using the CII index, you can calculate the inflation-adjusted purchase price using the following formula:
Inflation-adjusted price = (CII of the year of sale/ CII of the year of purchase)*Actual price of the asset
How to calculate cost inflation index?
In income tax calculations, Cost Inflation Index values play a crucial role. The CII is used to find the indexed cost of acquisition (or improvement) of eligible assets. Let us discuss an example of calculating the indexed purchase cost using the Cost Inflation Index. Consider the following details about the purchase and sale of a house property.
- Purchase value: Rs. 5,00,000
- Purchase date: April 5, 2007
- Financial year of purchase: FY 2007-08
- Sale value: Rs. 30,00,000
- Sale date: May 14, 2017
- Financial year of sale: FY 2017-18
To calculate the indexed cost of acquisition of the above house property, you can use the following formula.
Indexed acquisition cost = Purchase price x (CII for the year of sale ÷ CII for the year of purchase)
Using the formula above, we get the following indexed cost of acquisition:
= Rs. 5,00,000 x (272 ÷ 129)
= Rs. 10,54,264
This means the capital gains from the sale of the property will be Rs. 19,45,736 (i.e. Rs. 30,00,000 minus Rs. 10,54,264).
Practical examples of Cost Inflation Index calculation
Case 1: Amit purchased a flat in FY 2003-04 for Rs. 15,00,000. He sells the flat in FY 2019-20. What will be the indexed cost of acquisition?
In the instant case, the CII for 2003-04 is 109, and for 2019-20 is 289.
Now, the indexed cost of acquisition = 15,00,000 x 289/109 = Rs. 39,81,651
Case 2: Priya purchased a capital asset in FY 1997-98 for Rs. 3,00,000. The Fair Market Value (FMV) of the asset on 1st April 2001 was Rs. 5,00,000. She sells the asset in FY 2018-19.
In this example, it must be noted that the capital asset was acquired before the base year of 2001-02. Hence, the cost of acquisition would be the higher of actual cost or FMV on 1st April 2001, i.e., Rs. 5,00,000.
In this case, CII for 2001-02 is 100 and for CII for 2018-19 is 280.
Hence, indexed cost of acquisition = 5,00,000 x 280/100 = 14,00,000
Case 3: Rohan purchased equity shares for Rs. 1,50,000 on 1st March 2016 and sold the shares on 1st April 2021.
In this case, the CII for FY 2015-16 is 254, and for FY 2021-22, it is 317.
Hence, indexed cost of acquisition = 1,50,000 x 317/254 = Rs, 1,87,008
Case 4: Nisha purchased Sovereign Gold Bonds in November 2017 for Rs. 2,50,000. The bonds were prematurely withdrawn in January 2023 at the existing market price of Rs. 3,20,000.
In this case, the CII for FY 2017-18 is 272, and for FY 2022-23, it is 331.
Hence, indexed cost of acquisition = 2,50,000 x 331/272 = Rs. 3,04,044
Case 5: Suresh purchased a house in December 2013 for Rs. 25,00,000. The house was sold in August 2024.
In this case, the CII for FY 2013-14 is 220, and for FY 2024-25, it is 348.
Hence, indexed cost of acquisition = 25,00,000 x 348/220 = Rs. 39,54,545.
Significance of the Cost Inflation Index
The primary purpose of the Cost Inflation Index is to ensure that certain costs can easily be adjusted to account for inflation. Some examples of such costs include the amount used to purchase a house property or a lump sum investment made in a mutual fund scheme.
The adjusted investment value or purchase cost is known as the indexed cost of acquisition or purchase. If the cost of improving a house property is adjusted using the Cost Inflation Index, you get the indexed cost of improvement. These values are all crucial to calculate the capital gains from the sale of certain assets.
What is the base year in the cost inflation index?
The base year is central to the concept and calculation of the Cost Inflation Index. It is the first year from which CII values are assigned. The CII value for the base year is fixed at 100 and increases from the next year onward.
In India, the base year for CII was originally the financial year 1981-82. For any property or asset purchased before the base year, the higher of the Fair Market Value (FMV) on the first day of the base year or the actual cost is considered.
However, investors found it difficult to find the FMV of such properties as of April 1, 1981. So, the base year for the Cost Inflation Index was later changed to the financial year 2001-02 because the records for property valuation as of April 1, 2001, were more easily available.
Why is the base year important in the cost inflation index?
The selection of the base year in the Cost Inflation Index (CII) holds significance as it acts as the benchmark for calculating the CII in subsequent years. This standardized practice of choosing the base year ensures an accurate portrayal of how inflation impacts the indexed acquisition cost.
Changes to the base year can wield significant influence over the computation of the Cost Inflation Index. For instance, in India, transitioning the base year from 1981 to 2001 led to resetting the CII for 2001-02 at 100. This adjustment carries implications for computing the indexed acquisition cost, especially for assets acquired before 2001, potentially resulting in alterations to capital gains tax obligations.
Conclusion
The Cost Inflation Index (CII) helps adjust the purchase price of long-term capital assets for inflation and calculate long-term capital gains from assets like property, stocks, and bonds. This adjustment ensures that capital gains tax reflects true economic profit.
The CII table, which starts from the base year 2001-02 with a value of 100, adjusts the purchase price of these assets to account for inflation. The indexed cost of acquisition is calculated by multiplying the original purchase price by the ratio of the CII for the sale year to the CII for the purchase year. This reduces taxable gains and lowers the tax burden.
It is worth mentioning that earlier, the base year was 1981, which was later changed to 2001 to simplify valuations. Furthermore, the CII is notified by the central government and is based on 75% of the average rise in the Consumer Price Index for the preceding year. The CII for FY 2024-25 is 363.