Cost Inflation Index Calculation

Cost Inflation Index Formula:

\[ \text{Indexed Value} = \text{Original} \times \frac{\text{CII\_2025}}{\text{CII\_base}} \]

Indexed Value:

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1. What is Cost Inflation Index Calculation?

The Cost Inflation Index (CII) calculation adjusts asset values for inflation using India's official Cost Inflation Index. It helps determine the indexed cost of acquisition for capital gains tax purposes, accounting for inflation over time.

2. How Does the Calculator Work?

The calculator uses the Cost Inflation Index formula:

\[ \text{Indexed Value} = \text{Original} \times \frac{\text{CII\_2025}}{\text{CII\_base}} \]

Where:

\( \text{Original} \) — Original amount in currency
\( \text{CII\_2025} \) — Cost Inflation Index for 2025-26 (376)
\( \text{CII\_base} \) — Cost Inflation Index for base year

Explanation: The formula adjusts the original value to current purchasing power by accounting for inflation between the base year and 2025-26.

3. Importance of Inflation Adjustment

Details: Accurate inflation adjustment is crucial for calculating capital gains tax, determining fair market value comparisons, and making informed financial decisions that account for the time value of money.

4. Using the Calculator

Tips: Enter the original amount in currency units, the base year CII value, and the calculator will use CII 2025-26 value of 376. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is Cost Inflation Index (CII)?
A: CII is a measure of inflation published by the Income Tax Department of India to adjust the purchase price of assets for inflation when calculating long-term capital gains.

Q2: Why use CII 2025-26 value of 376?
A: This is the official Cost Inflation Index notified for the financial year 2025-26 as per current projections and government notifications.

Q3: Where can I find CII values for different years?
A: CII values are published annually by the Central Board of Direct Taxes (CBDT) and are available on the Income Tax Department's official website.

Q4: What types of assets can use CII adjustment?
A: CII is primarily used for long-term capital assets like real estate, mutual funds, stocks (held for more than specified periods), and other capital investments.

Q5: Is CII applicable only in India?
A: Yes, Cost Inflation Index is specific to Indian tax laws and is used for calculating indexed cost of acquisition under the Income Tax Act, 1961.