Cost Inflation Index (CII)

In the case of transfer of long term capital asset, Income Tax on capital gains is determined by deducting indexed cost of acquisition/ improvement from the sale consideration.

Finance Act 2017 has proposed amendments in provisions relating to indexation for the purpose of determining long term capital gains. Base year has been shifted from FY 1981-82 to FY 2001-02.

In respect of assets acquired prior to 1 Apr. 2001, the assessee now has the option to use FMV/ Indexed Cost of Acquisition for arriving at the figure of long term capital gains. It’s likely that investors in property will stand to gain in most of the cases with shifting of the base year for the purpose of indexation.

Cost Inflation Index basically means the index notified by the Central Govt. with reference to average rise in the consumer price index, during the year immediately preceding the relevant previous year. However, indexed cost of acquisition is arrived at by multiplying the cost of acquisition with the change in cost inflation index since the year of acquisition or 1 April, 2001 whichever is later.

Income Tax - Cost Inflation Index (CII)