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 The economy of the world is dynamic in nature and it is pretty much evident by the decrease in purchasing power of money. This is because of the ever-rising prices of goods and services. The phenomenon of a reduction in the value of money that leads to a rise in an individual’s cost of living is called inflation. A cost inflation index is used to calculate the increase in goods and assets price year by year because of such inflation. Let’s look at cost inflation index chart for capital gain in India below.

What is the Cost Inflation Index?

Cost inflation Index or CII is a tool that is used to estimate the yearly increase in goods or assets price that happens because of inflation. This cost inflation index chart is fixed by the central government. The indexation chart is then published in the official gazette for calculating inflation. The cost inflation index chart is notified every year by the government and is defined under Section 48 of the Income Tax Act India, 1961.

The index is then used to calculate the long term capital gains that arise from the transfer or sale of capital assets. The cost inflation index is calculated against the base year, i.e. the first year in the index whose value is set at 100. The indexation of the following years is done in accordance with the base year to check the rise of inflation percentage. Let’s see why the cost inflation index is calculated.

Why is the Cost Inflation Index Calculated?

A cost inflation index chart helps check and match the prices to the inflation rate. In other words, a rise in the inflation rate over the years will lead to an increase in the prices of goods and services.

Indexation Chart from Financial Year 2001-02 to Financial Year 2020-21

The cost inflation index chart or cost inflation index table is calculated by using 2001-02 as the base year where the price is at 100. A quick look at the indexation chart will show how the prices of goods and services have increased over the years.

Sr. No.

Financial Year

Cost Inflation Index

1

2001-02 (base year)

100

2

2002-03

105

3

2003-04

109

4

2004-05

113

5

2005-06

117

6

2006-07

122

7

2007-08

129

8

2008-09

137

9

2009-10

148

10

2010-11

167

11

2011-12

184

12

2012-13

200

13

2013-14

220

14

2014-15

240

15

2015-16

254

16

2016-17

264

17

2017-18

272

18

2018-19

280

19

2019-20

289

20

2020-21

301

The cost inflation index helps in understanding the constant rise in the prices of different goods and commodities. In other words, if two units of goods could be bought at ₹100 today, only one unit can be bought at the same price tomorrow due to inflation. This indexation chart helps in studying the change in price.

Let’s understand this with the help of a practical example. Rohan purchased a flat in the financial year 2001-02 for ₹10,00,000. He sold the flat in 2017-18. What would be the indexed cost of acquisition?

In this scenario, the cost inflation index in the year 2001-02 and 2017-18 is 100 and 272 respectively. Therefore, the indexed cost of acquisition will be 10,00,000 x 272/100 = ₹27,20,000.

FAQs

  • ✔️What do you mean by cost inflation index?

     A cost inflation index is used to calculate the rise in the yearly price of goods and assets because of inflation.

  • ✔️What is the cost inflation index for 2019-20?

     The cost inflation index for the financial year 2019-20 is 289.

  • ✔️How do you calculate the cost inflation index of a property?

     The formula for calculating the indexed cost is:

    (Index for the year of sale/ Index for the year of acquisition) x cost.

  • ✔️What is the cost inflation index of 2021-22?

     For the financial year 2021-22, the cost inflation index is 317.

  • ✔️What are the 4 types of inflation?

     The four types of inflation are creeping, walking, galloping and hyperinflation

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