Cost Inflation Index for AY 2018-19

What is Cost Inflation Index?

Cost Inflation Index (CII) is a measure of inflation that is used to compute Long Term Capital Gains (LTCG) on the sale of capital assets. A capital asset is defined to include any type of property held by an assessee, whether or not connected with the business or profession. It includes all kinds of property, movable or immovable, tangible or intangible, fixed or circulating. For example - land, house, etc.

What is indexed Cost of Acquisition ?

Indexation means the adjustment in the purchase price of capital asset based on the Cost of Inflation index (CII). This inflated cost is considered to be the cost of acquisition when calculating the gains or losses arising from the sale of the capital asset.

How to use the base year?

The base year has been changed from the FY 1981-82 to FY 2001-02.

The following table summarizes the Cost Inflation Index from Financial year 2001-02 up to Financial year 2017-18.

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For example -

Mr. Rahul has purchased the property in FY 2007-08 for Rs. 50 lakh and sold the same in FY 2017-18 at Rs. 3 crore. Now, the indexed cost of acquisition will be calculated as:

‘Purchase Price of the Asset’ multiplied by ‘CII for the year in which the asset is sold’ divided by ‘CII for the year in which the asset was first’.

Therefore, Indexed Cost of Acquisition will be 50,00,000 * 272/129 = Rs. 1,05,42,636.

And, the Long Term Capital Gain = Selling Price - Indexed Cost of buying property

= 2,00,00,000 - 1,05,42,636 = Rs. 94,57,364.

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