The Cost Inflation Index (CII) is used in the Indian Income Tax system to adjust the cost of acquisition and improvement of assets for inflation when calculating long-term capital gains (LTCG). This adjustment helps in reducing the taxable amount of capital gains by accounting for inflation, making it a crucial tool for taxpayers

The Cost Inflation Index (CII) for the financial year 2023-24 is 348.

Cost Inflation Index Chart – From FY 2001 – 2002

The CII is updated annually by the Central Board of Direct Taxes (CBDT), and these updates are essential for calculating the indexed cost for different financial years.

Financial YearCost Inflation Index (CII)
2001-02 (Base year)100
2002-03105
2003-04109
2004-05113
2005-06117
2006-07122
2007-08129
2008-09137
2009-10148
2010-11167
2011-12184
2012-13200
2013-14220
2014-15240
2015-16254
2016-17264
2017-18272
2018-19280
2019-20289
2020-21301
2021-22317
2022-23331
2023-24348

Steps to Use Cost Inflation Index in Income Tax

  1. Determine the Year of Purchase and Sale: Identify the financial years in which the asset was purchased and sold.
  2. Find the CII Values: Obtain the CII values for the years of purchase and sale.
  3. Calculate the Indexed Cost: Use the CII values to calculate the indexed cost of acquisition and improvement
  4. Compute the Capital Gain: Subtract the indexed cost from the sale price to get the long-term capital gain.

How to Calculate Indexed Cost of Acquisition or Improvement

Indexation is the process of adjusting the purchase price of an asset to account for inflation. This is done using the Cost Inflation Index (CII) in the table given above. Indexation helps in reducing the overall capital gain and, consequently, the tax liability.

The indexed cost of acquisition or improvement is calculated using the CII. The formula for calculating the indexed cost is:

Indexed Cost = Actual Cost * CII of the year of sale or transfer / CII of the year of purchase or improvement

Example : Sale of Land

Purchase Details

  • Purchase Year: 2010-11
  • Purchase Price: ₹10,00,000
  • CII for 2010-11: 167

Sale Details

  • Sale Year: 2023-24
  • Sale Price: ₹30,00,000
  • CII for 2023-24: 348

Calculation of Indexed Cost
Indexed Cost = 10,00,000 * 348/167
= ₹20,83,832
Calculation of Capital Gain
Capital Gain = Sale Price – Indexed Cost
= 30,00,000 – 20,83,832
= ₹9,16,168

Points to remember

  • CII is applicable only for long-term capital assets. For short-term capital assets, the actual cost is used without indexation.
  • The base year for CII calculation is 2001-02, with the CII for this year set at 100. For assets acquired before this year, the fair market value as of April 1, 2001, can be used.
  • In the case of property received through a will, the CII for the year in which the property is inherited should be used. The actual year when the property was originally purchased should be disregarded.
  • Cost of Improvement before 01st April, 2001 should be ignored

Categorized in:

Capital Gain