Cost Inflation Index: Cost Inflation Index is very useful in saving tax on long-term profits made by selling gold-property.
Cost Inflation Index: The prices of things are increasing due to inflation. The Cost Inflation Index is used to measure the difference in the price of a commodity due to rising inflation. To understand this in simple words, if the value of a property 10 years ago was Rs 50 lakh and today it has become Rs 1 crore, then it does not mean that you got a direct profit of 50 lakh on selling it. This is because inflation has also increased in the last 10 years, that is, the value of the rupee 10 years ago has decreased today.
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An example to understand the index and how it saves tax
- In the above example, you had bought a property 10 years ago in 2011-2012 for 50 lakhs, the price of which has become Rs 1 crore in 2021-22. On this, you have made a profit of Rs 50 lakh, which is Long Term Capital Gain (LTCG) and will have to pay tax on it. However, if you calculate tax on Rs 50 lakh, then you will have to pay more tax. On the other hand, if we look at the Cost Inflation Index, it was 184 in 2011-12 and it is 331 for 2022-23.
- Now to calculate the Indexed Cost of Acquisition of this property in 2011-12, let’s use the formula (Purchase Price*Sell Year Index/Purchase Year Index). In this case the indexed cost of acquisition will be Rs 89,94,565 (50,00,000 * 331/184).
- Thus, through cost of indexation, you will have to pay tax on Rs 10,05,435 (1 crore-89,94,565) instead of Rs 50 lakh.
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Cost inflation index is released every year
Due to inflation, the purchasing power of the people is decreasing. Purchasing power means that if you are able to buy two units of something for Rs 100 today, then in the coming time you can buy only one thing, that is, the purchasing power is decreasing due to inflation. To measure this, the Cost Inflation Index (CII) is used. The CII for the last financial year 2021-22 is 317 and is issued by the Central Board of Direct Taxes (CBDT). This value for each year can be seen on the Income Tax website.
| financial year | cost inflation index |
| 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 |
| 2020 – 21 | 301 |
| 2021 – 22 | 317 |
| 2022-23 | 331 |
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