Cost Inflation Index For FY 2012-13: CII And Capital Gain Tax

Cost Inflation Index or CII is a measure of inflation which has application in tax laws while computing long term capital gain made on sale of any capital asset. It is very useful in determining the real current market value of a capital asset purchased or acquired long time ago by translating the old cost price or earlier cost of acquisition at current market value and calculating the capital gain made on the sale of such asset at current market price.

In simple words, CII adjust the effect of inflation on the price of a capital asset.

Cost Inflation Index for financial year 2012-13 notified by CBDT is 852.

Section 48 of the Indian Income-Tax Act defines the process of preparing the index every year and the Central Government every year publishes such CII through official notification. The CII is prepared by adding 75% of the average rise of CPI or Consumer Price Index for town-based non-manual employees for the immediate preceding previous year.

For the preparation of Cost Inflation Index the financial year 1981-82 is taken as the base year at value 100. Inflation for a financial year is taken at around 75% value and such figure is added to the previous year’s CII. However, sometime in some years the inflation does not properly matches the rise or hike in real estate values. Under those situations, further adjustments are made to reflect the changes in real estate value through CII as close as possible (for example 1991-92, 2012-13, etc in the following table). Cost Inflation Index so far notified by the Central Government since 1981-82 with calculation is mentioned in the following table.

Cost Inflation Index For Financial Year 2012-13

The Financial Year Real Inflation  75% of Real Inflation Effect of Inflation added to previous year’s Index CII or Cost Inflation Index
1981-1982

100

1982-1983

12%

 9% 9

109

1983-1984

8.56%

 6.422 7

116

1984-1985

10.34%

7.7586 9

125

1985-1986

8.53%

6.4 8

133

1986-1987

7.02%

5.263 7

140

1987-1988

9.52%

7.1428% 10

150

1988-1989

9.78%

7.333% 11

161

1989-1990

9.11%

6.8323% 11

172

1990-1991

7.75%

5.8139% 10

182

1991-1992

12.45%

9.340% 17

199

1992-1993

16.08%

12.060% 24

223

1993-1994

12.56%

9.4170% 21

244

1994-1995

8.20%

6.1475% 15

259

1995-1996

11.33%

8.494% 22

281

1996-1997

11.39%

8.5409% 24

305

1997-1998

10.47%

7.8549% 26

331

1998-1999

8.06%

6.0423% 20

351

1999-2000

14.44%

10.826% 38

389

2000-2001

5.83%

4.370% 17

406

2001-2002

6.57%

4.926% 20

426

2002-2003

6.57%

4.93% 21

447

2003-2004

4.77%

3.58% 16

463

2004-2005

4.90%

3.67% 17

480

2005-2006

4.72%

3.54% 17

497

2006-2007

5.90%

4.43% 22

519

2007-2008

8.22%

6.17% 32

551

2008-2009

7.50%

5.62% 31

582

2009-2010

11.46%

8.60% 50

632

2010-2011

16.49%

12.36% 79

711

2011-12

13.88%

10.41% 74

785

2012-13

11.38%

 8.54% 67

852

The formula for computing the indexed cost = (CII for the year of sale/ CII in the year of acquisition) X Cost.

Suppose one asset was purchased in 1990-91 for Rs 20 lakh and sold now in 2012-13 for Rs 98 lakh, then the indexed cost will be 852/182X Rs 20,00,000 = Rs 93,62,640.

Therefore, the long term capital gain  will be, Rs 98, 00,000– Rs 93, 62,640 = Rs 4, 37,360

The tax on long term capital gain will be calculated on Rs 4, 37,360

Cost Inflation Index for A.Y 2013-14

Cost Inflation Index for assessment year (Ay) 2013-14 should be the CII for the previous financial year 2012-13. It has been notified by the CBDT or Central Board of Direct Taxes as 852.

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