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Cost Inflation Index (CII): Meaning, Formula & Calculation

Anshika

Learn how the Cost Inflation Index works to discover how CII adjusts asset costs for taxation purposes in India.

The Cost Inflation Index (CII) is an important financial and taxation metric used in India to adjust the purchase price of capital assets for inflation. It ensures that taxpayers are not unfairly taxed on gains that occur merely due to inflation. Whether you are selling property, gold, mutual fund units, or other long-term capital assets, understanding the CII helps you calculate capital gains accurately and reduce your tax liability.

What Is the Cost Inflation Index

The Cost Inflation Index (CII) is a measure released annually by the Government of India to show how much the general price level (inflation) has increased compared to a base year. It helps compute inflation-adjusted (indexed) cost of acquisition and improvement for calculating long-term capital gains (LTCG) under the Income Tax Act.

In simple terms, CII helps convert historical asset prices into present-day values based on inflation. The higher the inflation, the higher the CII—and therefore, the lower your taxable capital gain.

Purpose of the Cost Inflation Index

CII is used to:

  • Adjust the purchase price of assets for inflation

  • Compute fair long-term capital gains

  • Protect taxpayers from paying tax on inflation-driven gains

  • Maintain transparency and fairness in capital gains taxation

  • Provide an objective standard for indexation across different years

Without the Cost Inflation Index, individuals would pay tax on gains that are not real gains but simply the result of rising prices.

Cost Inflation Index Table

Below is the most recent CII table (Base Year: 2001–02 = 100):

Financial Year CII Value

2017–18

272

2018–19

280

2019–20

289

2020–21

301

2021–22

317

2022–23

331

2023–24

348

2024–25 (Latest)

363

Note: These values are notified every year under the Income Tax Act.

Cost Inflation Index Formula

The general formula for indexation is:

  • Indexed Cost of Acquisition = (Cost of Acquisition × CII of Year of Sale) ÷ CII of Year of Purchase

  • Indexed Cost of Improvement = (Cost of Improvement × CII of Year of Sale) ÷ CII of Year of Improvement

Components:

  • Cost of Acquisition: Original purchase price

  • CII (Year of Purchase): Index value for the year you bought the asset

  • CII (Year of Sale): Index value for the year you sold the asset

How to Calculate Cost Inflation Index

Follow these steps:

  1. Find the year of purchase and year of sale

  2. Check the CII values for both years

  3. Apply the indexation formula

  4. Compute indexed cost

  5. Subtract indexed cost from sale value to get long-term capital gains

Example of Cost Inflation Index Calculation

Suppose you bought a plot of land for ₹10,00,000 in 2010–11 (CII = 167) and sold it in 2024–25 (CII = 363) for ₹35,00,000.

Step 1: Calculate Indexed Cost of Acquisition

Indexed Cost
= ₹10,00,000 × (363 ÷ 167)
= ₹10,00,000 × 2.174
= ₹21,74,000 (approx.)

Step 2: Calculate Long-Term Capital Gain

Capital Gain
= Sale Price – Indexed Cost
= ₹35,00,000 – ₹21,74,000
= ₹13,26,000

Thus, indexation reduces taxable capital gain significantly—from ₹25,00,000 (without indexation) to ₹13,26,000.

Cost Inflation Index India: Historical Data

Below is a quick reference for historical CII values (base year 2001–02 = 100):

Year CII Year CII

2001–02

100

2013–14

220

2005–06

117

2014–15

240

2009–10

148

2015–16

254

2011–12

184

2016–17

264

Factors Affecting the Cost Inflation Index

Several economic and policy variables influence how the Cost Inflation Index (CII) changes each year:

  • Changes in consumer price inflation

  • Economic conditions

  • RBI monetary policy

  • Government fiscal policy

  • Changes in the cost of goods and services

  • Revisions to base year

Importance of the Cost Inflation Index

CII plays an important role in:

  • Long-term capital gains taxation

  • Ensuring taxpayers pay tax only on real gains

  • Providing relief during high-inflation periods

  • Relevant for long-term investment assets

  • Offering clarity in asset valuation for taxation

For assets held long term (like real estate), CII significantly reduces tax liability.

Limitations of the Cost Inflation Index

The following may restrict the effectiveness of the Cost Inflation Index:

  • It uses general inflation, not asset-specific inflation

  • Indexation benefits do not apply to short-term capital gains

  • Can be revised by the government, creating inconsistencies

  • Some financial instruments do not qualify for indexation

Conclusion & Key Takeaways

The Cost Inflation Index (CII) plays a vital role in ensuring fair long-term capital gains taxation in India. By adjusting the purchase cost for inflation, it prevents taxpayers from being taxed on nominal gains and offers a more accurate picture of real profits. For anyone dealing with real estate or long-term capital assets, understanding CII is essential for correct tax planning and compliant reporting.

Key takeaways:

  • Adjusts purchase cost to account for inflation

  • Helps calculate long-term capital gains accurately

  • Prevents taxation on inflation-driven gains

  • Essential for real estate and other long-term asset transactions

  • Supports tax planning and financial decision-making

Disclaimer

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

FAQs

What is the meaning of cost inflation index?

The cost inflation index represents a measure used to adjust the purchase cost of assets for inflation so that long-term capital gains can be calculated more accurately under tax rules.

Who releases the cost inflation index in India?

The cost inflation index in India is released each financial year by the Central Board of Direct Taxes, which notifies the updated value through official publications.

What is the current cost inflation index?

The cost inflation index for the financial year 2024–25 is 363, reflecting the inflation-adjusted benchmark used for computing indexed asset costs for that period.

What is a cost inflation index calculator?

A cost inflation index calculator is an online tool that applies the notified index values to determine the inflation-adjusted cost of an asset, helping users compute the indexed cost for capital gains calculations.

What are the base year details for the cost inflation index?

The cost inflation index uses 2001–02 as the base year, assigning it a base value of 100 so that subsequent index values can measure inflation in relation to that starting point.

Hi! I’m Anshika
Financial Content Specialist

Anshika brings 7+ years of experience in stock market operations, project management, and investment banking processes. She has led cross-functional initiatives and managed the delivery of digital investment portals. Backed by industry certifications, she holds a strong foundation in financial operations. With deep expertise in capital markets, she connects strategy with execution, ensuring compliance to deliver impact. 

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