# Computing your Capital Gain using cost inflation index

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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 Year Cost Inflation Index 1 2001-02 100 2 2002-03 105 3 2003-04 109 4 2004-05 113 5 2005-06 117 6 2006-07 122 7 2007-08 129 8 2008-09 137 9 2009-10 148 10 2010-11 167 11 2011-12 184 12 2012-13 200 13 2013-14 220 14 2014-15 240 15 2015-16 254 16 2016-17 264 17 2017-18 272

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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