Cost Inflation Index – Check Calculation for FY 2016-17 & AY 2017-18
The cost inflation index (CII) is a means to measure inflation, which is used in the computation of long-term capital gains with regard to the sale of assets. Cost inflation takes into account the Consumer Price Index (CPI) for a given year for urban non-manual employees for the preceding year. As the price of a capital asset is likely to rise in the years between the purchase and its sale, selling the asset would net the owner a significant amount.
New cost inflation index for the Financial Year
The new cost inflation index for the year 2016-17 is 1125. According to Union Budget 2018, there has been no change in the cost inflation index.
Cost Inflation Index for Financial Year 2015-16:
Inflation reduces the asset value over a period of time. Indexation helps us to counter the erosion in the value of our assets over time. You can increase the purchase price of the asset using the inflation index. This reflects the inflation-adjusted price in the year the asset is being sold. The cost inflation index for the financial year 2015-16 is 1081.
Calculate Cost Inflation Index:
The purchase price of the asset is indexed by the cost inflation index.
The formula to calculate the cost inflation index is as follows:
Cost Inflation Index (CII) = CII for the year the asset was transferred or sold / CII for the year the asset was acquired or bought
When you index, it helps you save taxes. It helps you adjust the purchasing price of the apartment with the current market prices.
How is CII Useful in Reducing Tax?
We saw in the earlier example that indexing helps us save a substantial amount of Income Tax that will be levied on the long-term capital gain arising out of selling off your asset. But, indexation is not available for short-term capital gain or losses. This benefit is also not available to Non-Resident Indians.
The indexation for long term capital gain is available only if you meet the following criteria:
- Cost of acquisition of the asset has to be multiplied with the cost of inflation of the year it was transferred.
- That figure is to be divided by the cost inflation index for the year in which the asset was acquired.
- If the asset was purchased before 1981, the cost inflation index of the year 1981 must be taken into consideration.
- If you have made improvement of the asset, then you need to adjust the cost inflation index with the multiplying with the CII of the year the improvement was made.
Cost Inflation Index Chart:
Cost inflation index table is as follows:
| Financial Year | Index | Financial Year | Index |
|---|---|---|---|
| 1981-82 | 100 | 1999-00 | 389 |
| 1982-83 | 109 | 2000-01 | 406 |
| 1983-84 | 116 | 2001-02 | 426 |
| 1984-85 | 125 | 2002-03 | 447 |
| 1985-86 | 133 | 2003-04 | 463 |
| 1986-87 | 140 | 2004-05 | 480 |
| 1987-88 | 150 | 2005-06 | 497 |
| 1988-89 | 161 | 2006-07 | 519 |
| 1989-90 | 172 | 2007-08 | 551 |
| 1990-91 | 182 | 2008-09 | 582 |
| 1991-92 | 199 | 2009-10 | 632 |
| 1992-93 | 223 | 2010-11 | 711 |
| 1993-94 | 244 | 2011-12 | 758 |
| 1994-95 | 259 | 2012-13 | 852 |
| 1995-96 | 281 | 2013-14 | 939 |
| 1996-97 | 305 | 2014-15 | 1024 |
| 1997-98 | 331 | 2015-16 | 1081 |
| 1998-99 | 351 | 2016–17 | 1125 |
