CBDT notified the Cost of Inflation Index FY 2019-20 AY 2020-21 for Capital Gain on 12th September 2019. You may be aware that the base year was changed from the earlier FY 1981-82 to FY 2001-02.
Change in the Base year for Capital Gain Indexation
What is Cost of Inflation Index (CII)?
It is a measure of inflation that is used for computing Long Term Capital Gains (LTCG) on the sale of capital assets as per IT Section.48.
It is announced for each Financial Year but not based on Assessment Year. Hence, the applicable rate of CII will be for that particular financial year.
To arrive at a capital gain, it is very much important to calculate the LTCG. For this purpose Cost of Inflation Index is a must.
Take an example of how the indexed cost of acquisition will be calculated using Cost of Inflation Index or CII.
The formula is as below.
Indexed Cost of Acquisition=(Cost of Acquisition/Cost of Inflation Index (CII) for the year in which the asset was first held by the assessee OR FY 2001-02, whichever is later)* Cost of the Inflation Index (CII) for the year in which the asset was sold or transferred.
Let us assume that you purchased the property in FY 2005-06 at Rs.50 lakh and sold the same in FY 2017-18 at Rs.1.5 Cr. Now the indexed cost of acquisition will be as per the above formula i.e.
Indexed Cost of Acquisition=(Rs.50 lakh/117)*272=Rs.1,16,23,931. So the Long Term Capital Gain=Selling Price-Indexed Cost of buying property=Rs.33,76,069.
(Note-As per the below Cost of Inflation Index (CII), the CII rate for FY 2017-18 is 272 and for FY 2005-06, it is 117).
However, if you do not consider the indexed cost, then in plain the gain may be said as Rs.1 Cr lakh (Rs.1.5 Cr-Rs.50 Lakh). But in the case of taxation, the LTCG on capital assets will be after adjusted the cost of buying to inflation or Cost of Inflation Index (CII).
Hope you understood the concept and importance of the Cost of Inflation Index (CII). Below is the chart showing the Cost of Inflation Index (CII) from the changed base year FY 2001-02 to FY 2017-18.
Cost of Inflation Index FY 2019-20 AY 2020-21 for Capital Gain
Below is the complete list of Cost of Inflation Index FY 2019-20 AY 2020-21 from new base year FY 2001-02 to FY 2019-20.
This notification will come into force with effect from 1st day of April 2019 and will accordingly apply to the Assessment Year 2019-20 and subsequent years.
Hope this information will help you in arriving at your capital gain tax.
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