September 13, 2019

Cost of Inflation Index FY 2019-20 AY 2020-21 for Capital Gain

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

 In Budget 2017, the Government proposed to change the base year to calculate the indexation benefit from 1981 to 2001.  
Do remember that the change in the base year is across all asset classes but the impact would differ across assets that enjoy indexation benefit on long-term capital gains—real estate, unlisted shares, gold and bond funds.
Up to 31st March 2017, the capital gain was calculated with 1981 as the base year. This means that the purchase price of an asset bought before 1 April 1981 could be calculated on the basis of the fair market value of 1981. However, from 1st Apr 2017, the purchase price will be calculated based on the fair market value of 2001. Accordingly, capital gains on assets acquired before 1 April 2001 will also be calculated using fair market value as of 2001.

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.

Cost of Inflation Index FY 2019-20 AY 2020-21

Hope this information will help you in arriving at your capital gain tax.

Refer few of our posts related to tax:-

10 Comments

  1. Hi Basu, your example helped understand the concept and also helped realise the current indexed cost of property. I have a question on property cost to be considered, is it –
    —The year it got registered in my name or
    —The year i got the possession to move in or
    —Some other formula as generally payment is done over a period of 2-3 years (so the actual cost is spread over multiple FY) before actual move in or getting registered in owner’s name.
    Please help.

    Reply
    • Dear Kalpesh,
      It is the year where you registered the property in your name.

      Reply
  2. Dear Sir,
    I had booked a flat in Bangalore in August 2007 for Rs.31 Lakhs & availed home loan from State bank of India for Rs.22 Lakhs in Dec 2017.
    Flat was registered through sale deed in Mar 2011 ( ie FY 2010-11) . And I continued to pay monthly EMI for till Jul 2012 ( ie FY 2012-13 ) However , occupancy certificate was issued by local govt authorities in Jan 2013 ( ie FY 2012-13).
    In Jun 2019, I sold the flat for Rs. 52 Lakhs & also paid Rs.50,000/- as brokerage charges
    My questions are :
    which financial year should I consider as purchase year based on above sequence of events ?
    I have incurred about Rs.5 Lakhs on improvement of flat such as interiors, painting, lighting fixtures, security gates etc . And neither do I have any bills for these expenses nor I have declared to income tax dept at the time of filing earlier . Can I add these expenses to cost of flat ? Will Income tax dept ask for documentary evidence now for these expenses ?
    Can I add brokerage charges as expenses
    Kindly give your expert advise on above queries & any other aspect I should consider to arrive at correct capital gain tax .
    Thanks & best regards
    Chandrashekar. K
    Mobile : 9945355997

    Reply
    • Dear Chandrashekar,

      1) The registration date is considered as a valid purchase or selling dates.
      2) Yes, you can consider but having bills will be better.

      Reply
  3. Basavaraj sir, does this mean the indexation benefit cannot be applied to long term profits obtained from selling equity mutual funds and stocks ?

    Reply
    • Dear Nithin,
      I never said so. Let me know if you understood it wrongly.

      Reply
  4. When I filed the ITR 2 form last year ,in the capital gain column I could not find any row where to put the LTCG for Debt funds as LTCG in case of Debt funds is calculated through CII. ALthough there was column for real estate, equity MFs,scripts and bonds but not for Debt Funds. Can you suggest how to fill LTCG for Debt MFs.

    Reply
    • Dear Dr.Dhami,
      Under Capital Gains Part B of the schedule, you have to show this.

      Reply
      • I purchased a flat in August 1998 for Rs 165000/= and if I sell it now for Rs.1425000/=, what is the CII and LTCG ?

        Reply
        • Dear Mahadevan,
          It is hard for me to calculate to each individual. Refer the above post.

          Reply

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