COST INFLATION INDEX:

Capital gain arises when the net sale consideration of a capital asset is
more than the cost. Since “cost of acquisition” is historical, the concept of
indexed cost allows the taxpayer to factor in the impact of inflation on cost.

Consequently, a lower amount of capital gains gets to be taxed than if historical

cost had been considered in the computations.

Formula for computing indexed cost is (Index for the year of sale/ Index in
the year of acquisition) x cost.

For example, if a property purchased in 1981-82 for Rs 25 lakh were to be

sold in A.Y. 2009 -10 for Rs 150 lakh, indexed cost = (582/100) x 25 lakh =
Rs 145.50 lakh. And the long-term capital gains would be Rs 4.5 lakh, that
is Rs 150 lakh less 145.5 lakh.

Cost Inflation Index Cost Inflation Index

Cost inflation index (CII)as Cost inflation index (CII)as
notified by Central Government notified by Central Government

Financial Year (CII) Financial Year (CII)

1981-1982 100 1996-1997 305

1982-1983 109 1997-1998 331
1983-1984 116 1998-1999 351
1984-1985 125 1999-2000 389
1985-1986 133 2000-2001 406
1986-1987 140 2001-2002 426
1987-1988 150 2002-2003 447
1988-1989 161 2003-2004 463
1989-1990 172 2004-2005 480
1990-1991 182 2005-2006 497
1991-1992 199 2006-2007 519
1992-1993 223 2007-2008 551
1993-1994 244 2008-2009 582
1994-1995 259 2009-2010 632
1995-1996 281 2010-2011 711