How To Calculate Cost Inflation Index

Cost Inflation Index Formula:

\[ CII\ Adjusted = Original\ Cost \times \left(\frac{CII\ Current}{CII\ Base}\right) \]

CII Adjusted (INR):

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1. What is Cost Inflation Index?

The Cost Inflation Index (CII) is used in India to calculate the indexed cost of acquisition for capital gains tax purposes. It helps adjust the purchase price of assets for inflation, reducing the tax burden on long-term capital gains.

2. How Does the Calculator Work?

The calculator uses the CII formula:

\[ CII\ Adjusted = Original\ Cost \times \left(\frac{CII\ Current}{CII\ Base}\right) \]

Where:

\( Original\ Cost \) — Original purchase price of the asset (INR)
\( CII\ Current \) — CII for the year of sale/transfer
\( CII\ Base \) — CII for the year of purchase

Explanation: The formula adjusts the original cost by the inflation factor between the purchase year and sale year, providing the inflation-adjusted cost for capital gains calculation.

3. Importance of CII Calculation

Details: Accurate CII calculation is crucial for determining long-term capital gains tax liability in India. It helps taxpayers claim legitimate inflation benefits and reduce their tax burden on asset sales.

4. Using the Calculator

Tips: Enter original cost in INR, CII for current year (sale year), and CII for base year (purchase year). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the purpose of Cost Inflation Index?
A: CII is used to calculate inflation-adjusted cost of assets for long-term capital gains tax computation in India, helping reduce tax liability by accounting for inflation.

Q2: Who publishes the CII values in India?
A: The Central Board of Direct Taxes (CBDT) notifies the Cost Inflation Index values each financial year.

Q3: For which assets is CII applicable?
A: CII is applicable for capital assets like real estate, shares, bonds, gold, and other specified assets held for more than specified periods (usually 24-36 months).

Q4: What is the base year for CII calculation?
A: The base year was changed to 2001-02 from FY 2017-18 onwards. Earlier it was 1981-82.

Q5: Can CII be used for all types of capital gains?
A: CII is primarily used for long-term capital gains. Short-term capital gains are generally taxed without inflation adjustment.