1. What is Cost Inflation Index?

The Cost Inflation Index (CII) is used in India to calculate long-term capital gains adjusted for inflation. It helps determine the indexed cost of acquisition for assets to reduce tax liability on capital gains.

2. How Does the Calculator Work?

The calculator uses the CII formula:

Where:

• \( \text{Current Year CII} \) — CII value for the current financial year
• \( \text{Base Year CII} \) — CII value for the base financial year
• \( \text{Base Index} \) — Original cost or base value

Explanation: The formula adjusts the original cost of an asset for inflation by applying the ratio of current year CII to base year CII.

3. Importance of CII Calculation

Details: Accurate CII calculation is crucial for calculating indexed cost of acquisition, reducing capital gains tax liability, and ensuring compliance with Indian tax laws for long-term capital assets.

4. Using the Calculator

Tips: Enter current year CII, base year CII, and base index values. All values must be positive numbers. For India, projected CII for 2025 is approximately 350.

5. Frequently Asked Questions (FAQ)

Q1: What is the purpose of Cost Inflation Index?
A: CII is used to adjust the purchase price of assets for inflation when calculating long-term capital gains, thereby reducing the tax burden.

Q2: How is CII determined in India?
A: The Central Government notifies the Cost Inflation Index each financial year based on the Consumer Price Index.

Q3: Which assets qualify for indexation benefit?
A: Long-term capital assets like real estate, debt mutual funds, and other capital assets held for more than specified periods.

Q4: What is the base year for CII calculation?
A: The base year was changed to 2001-02 from 2020-21 budget onwards for all capital assets.

Q5: Can CII be used for all types of capital gains?
A: No, indexation benefit is available only for long-term capital gains as defined under the Income Tax Act.