Cost Inflation Index for 2019 and last 19 years: Updated

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Cost Inflation Index (CII) is an Index which finds its utility in the income tax act at the time of computation of Long Term Capital Gains to be disclosed in the Income Tax Return. The Cost Inflation Index is issued by the Central Board of Direct Taxes (CBDT) and the figures that have been issued by the CBDT till date have been disclosed herewith for your Ready Reference.

The Cost Inflation Index Figure is announced for each Financial Year and the Cost Inflation Index Figures as released by CBDT for the previous years has been disclosed below

What is Cost Inflation Index?

An asset that was purchased in the year 2013 would normally be more expensive than an Asset that was purchased in the year 2005. The reason for the same is that Inflation keeps on increasing year after year as a Result of which Prices of most of the Assets increase year after year.

For eg: -Ram purchased an Asset in the year 2005 for Rs. 100. Now in the year 2013, he sells this for Rs. 200. Simple mathematics says that the Profit on such a transaction is Rs. 100 but would it be justifiable to enforce taxes on this Rs. 100 as the sale price also includes a component of Inflation?

To remove the Inflation component from this profit, the Govt. has introduced the concept of indexing the cost to adjust for inflation in the value of Assets held for more than 24 months.

The Indexing shall be done to the Cost of Acquisition and Cost of Improvement by the applying the Cost Inflation Index Factor as explained below.

Year Cost Inflation Index (CII) Year Cost Inflation Index (CII)
2001-02 100 2002-03 105
2003-04 109 2004-05 113
2005-06 117 2006-07 122
2007-08 129 2008-09 137
2009-10 148 2010-11 167
2011-12 184 2012-13 200
2013-14 220 2014-15 240
2015-16 254 2016-17 264
2017-18 272 2018-19 280
2019-20 289

Computation of Indexed Cost of Acquisition

The following are the 2 ways through which an asset can be acquired by an assessee:-

  1. Assets acquired directly by the taxpayer himself.
  2. Asset which was not directly acquired by the taxpayer himself but was acquired by the previous owner and the taxpayer became its rightful owner through transfer by means of gift/ succession/ will/inheritance etc.

Cost of Acquisition of Assets directly purchased by Assessee

The cost of acquisition shall be the amount which the assessee has paid to acquire that asset. Cost Inflation Index would be applied in this case as follows:-

Indexed Cost of Acquisition = Actual Cost of Acquisition *     Cost Inflation Index of year of Sale

                                                                                   Cost Inflation Index of year of Purchase

Therefore for an asset which was acquired in the year 2005-06 for Rs. 100 and sold in the year 2019-20 for Rs 300, the Indexed Cost of Acquisition would be

Indexed Cost of Acquisition =

100*

Cost Inflation Index of Year of Sale

Cost Inflation Index of year of Purchase

=

100*

289

117

=

Rs. 247

Capital Gains      = Sale Price – Indexed Cost of Acquisition

   = 300-247

    = Rs. 53

Asset which was not directly acquired by the assessee himself

Where the asset was not acquired by the taxpayer himself and the taxpayer became its rightful owner by means of gift/ succession/ will/ inheritance etc, no tax would be levied at the time of receiving the asset by means of gift/ succession/ will/ inheritance etc.

However, Capital Gains Tax would be levied when the person who has received the gift sells this Asset. The indexed cost of acquisition in this case shall be:-

Indexed Cost of Acquisition =

CII of the year of Sale

CII of the year of purchase

Eg: Mr A acquired a property in the year 2002-03 for Rs. 5,00,000. Mr A died on 15-9-2012 and the property was transferred to his son Mr. B through inheritance. The market value of the property as on 15-9-2012 was Rs. 10,00,000. Mr B sold this property on 15th November 2019 for Rs. 25,00,000. Compute the Capital Gains

Solution: No Capital Gains would arise in the hands of Mr A

Capital Gains would only arise in the hands of Mr. B and the Capital Gains in this case would be computed as follows:-

Indexed Cost of Acquisition = 5,00,000* CII of Year of Sale
CII of the year of Purchase
= 5,00,000*  289
 105
= 1376190

 Capital Gains   = Sale Price – Indexed Cost of Acquisition

= 25,00,000-13,76,190

= Rs. 11,23,810

Cost of Acquisition of properties purchased before 01-04-2001

As the Cost Inflation Index only shows figures starting from 2001-02, for assets purchased before 01-04-2001, the fair market value of the assets as on 01-04-2001 shall be taken into account. The taxpayer shall be given the option to either take the Fair Market Value as on 01-04-2001 as the Cost of Acquisition or consider the actual purchase price as the cost of acquisition.

The taxpayer can choose any of these values as the cost of acquisition. This can be explained with the help of an example.

Eg: Mr. R purchases a property on 01-08-1994 for Rs. 50,000 and this property is sold on 04-03-2008 for Rs. 28,00,000. The Fair market value of the property on 01-04-2001 was Rs. 12,00,000.

In the above example, indexing the cost of acquisition is impossible as the property has been purchased before 01-04-2001 and cost inflation index figure for properties purchased before 2001 is not available. In such a case, for the purpose of computing long term capital gains, the cost inflation index of 2001-02 shall be used and the cost of acquisition shall be taken to be the fair market value i.e. Rs. 12,00,000 on this date i.e. on 01-04-2001.

Indexed Cost of Improvement

Cost of improvement would be indexed in the same manner as the cost of acquisition. Any expense incurred before 1-4-2001 is to be completely ignored and only the expense incurred on improvement after 1-4-2001 is to be taken into account for the purpose of indexation. The reason for ignoring expense incurred before 1-4-2001 is because it would automatically get reflected in the Fair Market Value of the Asset as on 1-4-2001.

However, for expenses incurred after 1-4-2001, the Fair Market Value is not to be considered and the Cost Inflation Index is to be considered and therefore both the Cost of Acquisition and the Cost of Improvement i.e. Expenses would be indexed.

Indexed Cost of Improvement =                               Cost Inflation Index of the year of transfer

                                                                        Cost Inflation Index of the year of improvement

The above can be explained with the help of an example

Eg: Mr E purchased a house on 28-6-2010 for Rs, 1,10,000. On 15-06-2011, he spent Rs. 80,000 on improvement of the house. The house was sold on 21-10-2019 for Rs, 6,00,000. Commission of Rs. 4,000 was paid at the time of sale of the house. Compute the capital gains

Solution:

Sale Consideration 6,00,000
(Less) Expense on Transfer 6000
(Less) Indexed Cost of Acquisition (1,10,000 * 289/167) 190359.30
(Less) Indexed Cost of Improvement (80,000 * 289/184) 125652.20
3,22,011.50 277988.50
Long Term Capital Gains 68509

Various exemptions are also available from the Long Term Capital Gains computed above, provided the Capital Gains are reinvested in the specified mode of investments.

Recommended Read:

  1. Exemption under Section 54 from Long Term Capital Gains
  2. Capital Gains Account Scheme to save Tax on Long Term Capital Gains

Please Note: This Cost Inflation Index is only applied to long term capital assets i.e. only to those assets which have been held by the taxpayer for more than 24 months. For Assets held by the taxpayer for less than 24 months, the benefit of Indexation wont be available.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.