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 YEAR	COST INFLATION INDEX	Increase in CII and 75% ofpercentageof real inflation allowed	Real 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%