Cost of Inflation Index for FY 2020-21: Cost Inflation Index, or CII, for the financial year 2020-21 has been informed to be 301 by the Indian Ministry of Finance. The notification dates to 12th June 2020. This value of CII for the previous financial year was 289.
CII is essential as it helps arrive at the inflation-adjusted purchase price of any asset and thereby on the assets’ long-term capital gains when they are sold. This index is further helpful in computing the long term capital gains (LTCG) or long term capital losses (LTCL) on the assets, like gold, property, debt mutual fund units, and others held for more than three years and are sold in the financial year 2020-21.
According to the notification released by the Finance Ministry, CII for the financial year 2020-21 must be effective from 1st April 2021 and then it must accordingly apply to the assessment year 2021-22, i.e. the financial year 2020-21 and the subsequent years.
This article contains more details about the Cost of Inflation index, its use, calculation of LTCG and LTCL, and other details about the previous CII.
What is CII?
The Cost of Inflation Index stands for the index for the country’s inflation rate. The Central Board of Direct Taxes issues this index every year for the country. This index is also used for calculating the notional increase in an asset’s value due to inflation. Regarding the Cost Inflation Index, every individual must keep two main things in mind, which are as follows:
- CII value is used for calculating the inflation-adjusted cost only for the assets where the indexation benefit or the inflation adjustment is allowed. Therefore, you cannot use the CII value for arriving at LTCG or LTCL on the equity mutual funds when the amount exceeding 1 lakh INR per fiscal gets taxed at a flat rate of 10% without any indexation benefit.
- This CII number is required for calculating LTCG for the financial year 2020-21 for the assets where indexation is allowed before levying the LTCG tax. You will then have to pay taxes on these gains while filing the income tax returns for the financial year 2020-21.
How is CII Useful?
CII is very useful while calculating long-term capital gains. For this calculation, you have to consider CII for the year when you purchased the assets and the year when the assets are to be sold. Then the cost coming after the indexing is to be deducted from the selling price to calculate capital gains. This is why the capital gain tax is reduced.
However, the cost indexing benefits are only available in the case of long-term capital gains. If you have purchased the assets before 1st April 2981, then the cost of inflation index for the year 1981-81 must be taken as CII for then. If you have made any improvements in that asset, then you must adjust the CII by multiplying the previous one with the CII of the year when the improvements were made.
Therefore, the formula comes as:
- Cost after indexing = Cost before indexing * CII for selling year/CII for the purchase year
- Capital gain = selling price – cost after indexing
In 2017’s budget, the base year for CII got shifted from the financial year 1981-81 to 2001-02. Therefore, the new CII is applicable for the assessment year 2018-19 and subsequent years. Thus, for the financial year 2016-17, the older CII is to be used.
Computing Long Term Capital Gains Or Loss
Long-term capital gains refer to the capital gains arising from transferring the long-term capital assets. There is the availability of indexation benefits for the LTCG. Here is the computation for long term capital gains:
| Long Term Capital Gain/Loss | Amount |
| The complete value of the consideration
Less: Expenses incurred entirely and exclusively related to such transfer Net Consideration Less: Indexed acquisition cost Less: Indexed improvement cost Long Term Capital Gains Less: Exemption under the sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB |
xx
xx xxxxx xxxxx xx |
| Taxable Long Term Capital Gain (Loss if in negative) | XXX |
Securities Transaction tax is not allowed as the expenses’ deduction when you calculate the capital gains, either for short term or long term.
Indexed acquisition cost = (Acquisition Cost * CII of the transfer year) / CII of the acquisition year of the asset or CII for the year 1981, whichever is later.
Indexed improvement cost = (Improvement cost * CII of the transfer year) / CII of the year when the improvement was made.
CII Applicable From The Financial Year 2017-18
| Financial Year | Cost Inflation Index |
| 2020-21 | 301 |
| 2019-20 | 289 |
| 2018-19 | 280 |
| 2017-18 | 272 |
| 2016-17 | 264 |
| 2015-16 | 254 |
| 2014-15 | 240 |
| 2013-14 | 220 |
| 2012-13 | 200 |
| 2011-12 | 184 |
| 2010-11 | 167 |
| 2009-10 | 148 |
| 2008-09 | 137 |
| 2007-08 | 129 |
| 2006-07 | 122 |
| 2005-06 | 117 |
| 2004-05 | 113 |
| 2003-04 | 109 |
| 2002-03 | 105 |
| 2001-02 | 100 |
| Any instance before 1st April 2001 | 100 |
CII Applicable for The Financial Year 2016-17 And The Previous Years
| Financial Year | Cost Inflation Index |
| 2016-17 | 1125 |
| 2015-16 | 1081 |
| 2014-15 | 1024 |
| 2013-14 | 939 |
| 2012-13 | 852 |
| 2011-12 | 785 |
| 2010-11 | 711 |
| 2009-10 | 632 |
| 2008-09 | 582 |
| 2007-08 | 551 |
| 2006-07 | 519 |
| 2005-06 | 497 |
| 2004-05 | 480 |
| 2003-04 | 463 |
| 2002-03 | 447 |
| 2001-02 | 426 |
| 2000-01 | 406 |
| 1999-00 | 389 |
| 1998-99 | 351 |
| 1997-98 | 331 |
| 1996-97 | 305 |
| 1995-96 | 281 |
| 1994-95 | 259 |
| 1993-94 | 244 |
| 1992-93 | 223 |
| 1991-92 | 199 |
| 1990-91 | 182 |
| 1989-90 | 172 |
| 1988-89 | 161 |
| 1987-88 | 150 |
| 1986-87 | 140 |
| 1985-86 | 133 |
| 1984-85 | 125 |
| 1983-84 | 116 |
| 1982-83 | 109 |
| 1981-82 | 100 |
| Any instance before 1st April 1981 | 100 |