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Saturday, 8 June 2013

COST INFLATION INDEX - MEANING AND VALUES




COST INFLATION INDEX FOR FY 2013-14

The cost inflation index for the financial year 2013-14 has been notified by notification no. 40 dated 6th of June 2013 at 939


What is Cost Inflation Index (CII)

It is a measure of inflation that finds application in tax law, when computing long-term capital gains on sale of assets. Section 48 of the Income-Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year.Therefore, if we consider that price of a capital asset has risen in tandem with base price rise, then if one want to sell an asset and replace it, the cost allowed even after indexation will be lesser than the price payable for new asset. However, in case of many capital asset the price rise is lesser than market price and in many cases it is higher.

How does CII help in capital gains computation

Capital gain, as you know, arises when the net sale consideration of a capital asset is more than the cost. Since “cost of acquisition” is historical, the concept of indexed cost allows the taxpayer to factor in the impact of inflation on cost. Consequently, a lower amount of capital gains gets to be taxed than if historical cost had been considered in the computations.

Formula for computing indexed cost

Index for the year of sale/ Index in the year of acquisition) x cost.

For example, if a property purchased in 1991-92 for Rs 20 lakh were to be sold in A.Y. 2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh. And the long-term capital gains would be Rs 21.51, that is Rs 80 lakh minus Rs 58.49 lakh.

Cost Inflation Index of previous years

Cost inflation index (CII) as notified by Central Government along with analysis of the same is as under:
FINANCIAL YEARCOST INFLATION INDEXIncrease in CII and 75% ofpercentageof real inflation allowedReal inflation % of CII Increase allowed / 3 X 4
1981-1982
100
1982-1983
109
9 = 9%
12%
1983-1984
116
7= 6.422
8.56%
1984-1985
125
9=7.7586
10.34%
1985-1986
133
8=6.4
8.53%
1986-1987
140
7=5.263
7.02%
1987-1988
150
10=7.1428%
9.52%
1988-1989
161
11=7.333%
9.78%
1989-1990
172
11=6.8323%
9.11%
1990-1991
182
10=5.8139%
7.75%
1991-1992
199
17=9.340%
12.45%
1992-1993
223
24=12.060%
16.08%
1993-1994
244
21=9.4170%
12.56%
1994-1995
259
15=6.1475%
8.20%
1995-1996
281
22=8.494%
11.33%
1996-1997
305
24=8.5409%
11.39%
1997-1998
331
26=7.8549%
10.47%
1998-1999
351
20=6.0423%
8.06%
1999-2000
389
38=10.826%
14.44%
2000-2001
406
17=4.370%
5.83%
2001-2002
426
20=4.926%
6.57%
2002-2003
447
21=4.93%
6.57%
2003-2004
463
16=3.58%
4.77%
2004-2005
480
17=3.67%
4.90%
2005-2006
497
17=3.54%
4.72%
2006-2007
519
22=4.43%
5.90%
2007-2008
551
32=6.17%
8.22%
2008-2009
582
31=5.62%
7.50%
2009-2010
632
50=8.60%
11.46%
2010-2011
711
79=12.36%
16.49%
2011-12
785
74=10.41%
13.88%
2012-13
852
67 = 8.54%
11.38%