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Introduction
The Cost Inflation Index (CII) is a measure of inflation used in the computation of long-term capital gains on the sale of assets, as per Section 48 of the Income Tax Act, 1961. The Central Board of Direct Taxes (CBDT) notifies the CII annually. To date, the CBDT has provided the CII for financial years 1981-82 to 2024-25. This index is crucial for calculating the indexed cost of acquisition, which adjusts the purchase price of an asset for inflation.
Meaning of Cost Inflation Index (CII)
The CII is defined under Section 48 of the Income Tax Act, 1961. It represents 75% of the average increase in the Consumer Price Index (CPI) for urban non-manual employees for the previous year. This adjustment helps reflect the inflationary rise in asset prices, enabling taxpayers to account for inflation when calculating long-term capital gains.
Application of CII in Capital Gains Computation
Capital gain arises when the net sale consideration of a capital asset exceeds its cost. The тАЬcost of acquisitionтАЭ is historical, and using the indexed cost allows taxpayers to factor in inflation. Consequently, this adjustment often results in a lower taxable amount of capital gains compared to using the historical cost.
Cost Inflation Index Values: CII from Financial Year 1981-82 to 2016-17
| Financial Year | Cost Inflation Index | Increase in CII | Percentage Increase |
| 1981-1982 | 100 | тАУ | тАУ |
| 1982-1983 | 109 | 9 | 9.00% |
| 1983-1984 | 116 | 7 | 6.42% |
| 1984-1985 | 125 | 9 | 7.76% |
| 1985-1986 | 133 | 8 | 6.40% |
| 1986-1987 | 140 | 7 | 5.26% |
| 1987-1988 | 150 | 10 | 7.14% |
| 1988-1989 | 161 | 11 | 7.33% |
| 1989-1990 | 172 | 11 | 6.83% |
| 1990-1991 | 182 | 10 | 5.81% |
| 1991-1992 | 199 | 17 | 9.34% |
| 1992-1993 | 223 | 24 | 12.06% |
| 1993-1994 | 244 | 21 | 9.42% |
| 1994-1995 | 259 | 15 | 6.15% |
| 1995-1996 | 281 | 22 | 8.49% |
| 1996-1997 | 305 | 24 | 8.54% |
| 1997-1998 | 331 | 26 | 7.85% |
| 1998-1999 | 351 | 20 | 6.04% |
| 1999-2000 | 389 | 38 | 10.83% |
| 2000-2001 | 406 | 17 | 4.37% |
| 2001-2002 | 426 | 20 | 4.93% |
| 2002-2003 | 447 | 21 | 4.93% |
| 2003-2004 | 463 | 16 | 3.58% |
| 2004-2005 | 480 | 17 | 3.67% |
| 2005-2006 | 497 | 17 | 3.54% |
| 2006-2007 | 519 | 22 | 4.43% |
| 2007-2008 | 551 | 32 | 6.17% |
| 2008-2009 | 582 | 31 | 5.62% |
| 2009-2010 | 632 | 50 | 8.60% |
| 2010-2011 | 711 | 79 | 12.36% |
| 2011-2012 | 785 | 74 | 10.41% |
| 2012-2013 | 852 | 67 | 8.54% |
| 2013-2014 | 939 | 87 | 10.21% |
| 2014-2015 | 1024 | 85 | 9.05% |
| 2015-2016 | 1081 | 57 | 5.57% |
| 2016-2017 | 1125 | 44 | 4.07% |
Revised Cost Inflation Index from 2001-02 to 2024-25
Following the amendment to Section 55 of the Income-Tax Act, 1961 by the Finance Act, 2017, the base year for capital gains computation was shifted to 2001. The CBDTтАЩs Notification No. 44/2017, dated June 5, 2017, provides the revised CII for financial years starting from 2001-02.
| SI. No. | Financial Year | CII |
| 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 |
| 18 | 2018-19 | 280 |
| 19 | 2019-20 | 289 |
| 20 | 2020-21 | 301 |
| 21 | 2021-22 | 317 |
| 22 | 2022-23 | 331 |
| 23 | 2023-24 | 348 |
| 24 | 2024-25 | 363 |
Benefits of Cost Inflation Index:
The primary benefit of the Cost Inflation Index is its role in mitigating the impact of inflation on capital gains taxation. By adjusting the purchase cost of an asset for inflation, taxpayers can lower their taxable capital gains, reflecting a more accurate picture of the assetтАЩs true appreciation in value.
Relevant Case Law
One notable case regarding the use of CII in computing capital gains is:
CIT vs. Smt. Minakshi Bajaj: In this case, the Punjab and Haryana High Court ruled in favor of the taxpayer, allowing the benefit of indexation even for the period during which the asset was held by the previous owner. This decision underscores the importance of accurately applying CII in capital gains computation.
Summary
The Cost Inflation Index is a vital tool for taxpayers in India, helping them accurately compute long-term capital gains by adjusting for inflation. The CIIs from 1981-82 to 2024-25, as notified by the CBDT, provide a comprehensive framework for this adjustment, ensuring that taxpayers do not face undue tax burdens due to inflation.
By understanding and applying the CII correctly, taxpayers can benefit from reduced capital gains tax, reflecting the true economic value of their investments over time.
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