Computing your Capital Gain using cost inflation index

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Capital gain
Capital gain

Assets are sold by people from time to time. One can earn a capital gain when selling such an asset. A capital asset is defined as a type of property held by an assessee, whether or not connected with the business or profession. It includes all kinds of properties, movable or immovable, tangible or intangible, fixed or circulating, such as land, house, etc.

Computing your Capital Gain using cost inflation index

What is Cost Inflation Index?

Cost Inflation Index (CII) is a measure of factoring inflation which is used to calculate Long-Term Capital Gain (LTCG) on the sale of a capital asset.

What is indexed Cost of Acquisition?

Indexation means the correction (due to the time-value-of-money concept) 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 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 the financial year 2001-02 till the financial year 2017-18.

SI. No.Financial YearCost Inflation Index
12001-02100
22002-03105
32003-04109
42004-05113
52005-06117
62006-07122
72007-08129
82008-09137
92009-10148
102010-11167
112011-12184
122012-13200
132013-14220
142014-15240
152015-16254
162016-17264
172017-18272

For example:

Suppose Mohan has purchased the property in FY 2007-08 for Rs. 50 lakhs and sold the same in FY 2017-18 at Rs. 3 crores. 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’.

Computing your Capital Gain using cost inflation index

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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