1. What is Cost Inflation Index?

The Cost Inflation Index (CII) is a measure used in India to calculate the indexed cost of acquisition for capital assets. It helps account for inflation when calculating long-term capital gains for tax purposes.

2. How Does the Formula Work?

The calculator uses the Cost Inflation Index formula:

Where:

• \( CII \) — Cost Inflation Index (resulting indexed cost)
• \( \text{Cost Inflation Index Current} \) — CII for the year of sale/transfer
• \( \text{Base Year Index} \) — CII for the year of purchase/acquisition
• \( \text{Base Cost} \) — Original purchase cost of the asset

Explanation: The formula adjusts the original cost of an asset for inflation, providing a more accurate representation of the asset's value over time.

3. Importance of CII Calculation

Details: CII calculation is crucial for accurate capital gains tax computation. It reduces the tax burden by accounting for inflation and ensures fair taxation on real gains rather than nominal gains.

4. Using the Calculator

Tips: Enter the current year's CII, base year's CII, and the original cost of the asset. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the purpose of Cost Inflation Index?
A: CII is used to compute indexed cost of acquisition for calculating long-term capital gains tax, accounting for inflation effects.

Q2: Who publishes the Cost Inflation Index in India?
A: The Central Board of Direct Taxes (CBDT) notifies the CII numbers each financial year.

Q3: For which assets is CII applicable?
A: CII is applicable for capital assets like real estate, mutual funds, stocks (held long-term), gold, and other investments.

Q4: What is the base year for CII calculation?
A: The base year was changed to 2001-02 from FY 2017-18 onwards. Earlier it was 1981-82.

Q5: How does CII benefit taxpayers?
A: By increasing the acquisition cost through indexation, CII reduces the taxable capital gains, thereby lowering the tax liability.