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Cost Inflation Index (CII) for FY 2023-24 (AY 2024-25) - CII Table, Calculation & Examples

Updated on: 20 Jun, 2024 12:13 PM

Inflation refers to the overall increase in the prices of goods and services in an economy over time. Inflation reduces the purchasing power of money, which means that over time, the same amount of money can buy fewer goods and services. For example, if you bought two units of goods for Rs 100 today, tomorrow, only one unit might be available for Rs 100 due to inflation. Cost inflation index is a tool used to estimate the increase in the prices of goods and services every year due to inflation. The Cost Inflation Index (CII) for the financial year 2023-24 is 348.

Update - The Cost Inflation Index (CII) for the FY 2023-24 is 348. CII for FY 2024-25 has been set at 363 by the Central Board of Direct Taxes (CBDT).

What is Cost Inflation Index?

Cost Inflation Index (CII) is a tool used in India to adjust the purchase price of an asset for inflation, as inflation can impact the cost of an asset over time. CII is used to adjust the purchase price of an asset for inflation so that the actual inflationary gain or loss can be accurately determined when the asset is sold.

The CII is used to compute long-term capital gains tax in India. Long-term capital gains arise when an asset is sold after being held for more than a specified period. The CBDT announces the CII for a particular financial year before the start of the financial year.

Cost Inflation Index Table from FY 2001-2002 to FY 2023-2024

Find the updated CII Table from the Financial Year 2001-02 (Base Year) to FY 2023-24 below:-

S.No. Financial Year Cost Inflation Index
1 2023-24 348
2 2022-23 331
3 2021-22 317
4 2020-21 301
5 2019-20 289
6 2018-19 280
7 2017-18 272
8 2016-17 264
9 2015-16 254
10 2015-16 240
11 2013-14 220
12 2012-13 200
13 2011-12 184
14 2010-11 167
15 2009-10 148
16 2008-09 137
17 2007-08 129
18 2006-07 122
19 2005-06 117
20 2004-05 113
21 2003-04 109
22 2002-03 105
23 2001-02 & Base Year 100

How is Cost Inflation Index used in Income Tax?

The Cost Inflation Index (CII) serves as a crucial metric utilized by the Indian government to estimate inflation on an annual basis. It plays a pivotal role in adjusting the purchase price of an asset for inflation, thereby ensuring fair taxation in the realm of capital gains.

In practical terms, the CII is employed in income tax calculations to modify the purchase price of an asset, effectively reflecting the impact of inflation when computing capital gains tax. By utilizing the CII, taxpayers can mitigate the impact of inflation on their taxable gains, resulting in a more equitable taxation system.

This adjustment facilitated by the CII has a tangible effect on the tax liability of taxpayers, particularly concerning long-term capital gains. As the inflated purchase price lowers the capital gains amount subject to taxation, taxpayers find themselves facing a reduced tax burden on their long-term capital gains.

How to Calculate Cost Inflation Index

If you acquired a property in 2005 for ₹20,00,000 and subsequently sold it in the financial year 2023-24, consider the Cost Inflation Index (CII) values as follows:

CII for FY 2005-06 = 117
CII for FY 2023-24 = 348

The indexed cost of acquisition for the property can be calculated as:

Indexed Cost of Acquisition = (CII for FY 2023-24 / CII for FY 2005-06) * Cost of Acquisition

Substituting the given values:

Indexed Cost of Acquisition = (348 / 117) * 20,00,000
= 5,948,717.94

Therefore, the indexed cost of acquisition of the property would be approximately 5,948,717.

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What is the Purpose of Cost Inflation Index?

In the realm of accounting, companies typically record long-term capital assets, such as machinery, at their original cost price in their balance sheets. However, over time, the value of these assets may increase due to inflation, rendering it impractical to adjust their valuation in the accounting books.

When such capital assets are eventually sold, the sale price often exceeds the original cost price, leading to substantial long-term capital gains. Consequently, the taxpayer becomes liable to pay a higher long-term capital gains tax on the profit derived from the sale.

To address this issue and ensure fair taxation, the concept of the Cost Inflation Index (CII) is instrumental. The CII methodology extends to capital gains, enabling taxpayers to adjust the purchase price of capital assets in accordance with the sale price. This adjustment mechanism effectively mitigates the impact of inflation on the taxable gains, allowing taxpayers to demonstrate lower long-term capital gains and thereby reducing their tax liability.

By incorporating the CII into capital gains calculations, taxpayers can accurately reflect the erosion of purchasing power over time. This approach ensures that the taxation system remains equitable, as it taxes individuals or businesses based on their real gains rather than nominal ones. Ultimately, the utilization of the CII in capital gains taxation aligns with principles of fairness and economic efficiency, promoting a more balanced and transparent tax regime.

What is Base Year in Cost Inflation Index?

India uses a Cost Inflation Index (CII) to account for inflation when calculating capital gains for tax purposes. This index is based on a specific "base year," which was most recently changed from 1981 to 2001. This means that the CII for the financial year 2001-2002 is considered 100, and the CII for all other years is calculated relative to this starting point.

Why Base Year is Important in Cost Inflation Index?

The choice of the base year in the Cost Inflation Index (CII) is important as it serves as the reference point for determining the CII in subsequent years. This standardized approach in selecting the base year ensures an accurate reflection of the impact of inflation on the indexed acquisition cost.

Alterations to the base year can exert a substantial influence on the computation of the Cost Inflation Index. In the case of India, the shift in the base year from 1981 to 2001 resulted in resetting the CII for 2001-02 to 100. This adjustment has implications for the calculation of the indexed acquisition cost, particularly for assets procured before 2001, potentially leading to variations in capital gains tax liabilities.

How Can Indexation Lower Assesses’ Tax Liabilities on LTCG

The utilization of the Cost Inflation Index (CII) in capital gains taxation aims to adjust the purchase price of capital assets against their sale value, thus providing a more accurate reflection of the real gains accrued over time. This adjustment process yields two essential figures: the Indexed Cost of Acquisition and the Indexed Cost of Improvement.

The formulas for calculating these indexed costs are as follows:

Indexed Cost of Acquisition: Cost Inflation Index (CII) for the year of asset transfer (sale) / CII for the first year of the asset purchase or year 2001-02, whichever is later X cost of acquisition

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Frequently Asked Questions

Q- What is the cost inflation index for FY 2023-24?

The cost inflation index for FY 2023-24 is 348.

Q- What is the cost inflation index for FY 2017-18?

The cost inflation index for FY 2017-18 is 272.

Q- How do you calculate the cost inflation index of a property?

Indexed cost of a property = Cost of Acquisition * CII of the year of transfer/ CII of the year of acquisition

Q- What is the cost inflation index for FY 2019-20?

The cost inflation index for FY 2019-20 is 289.

Q- What is the indexing rate for 2019?

The indexing rate for 2019 is 289.

Q- How do you calculate the inflation index?

The inflation index is issued by the government of India every year via the Finance budget.

Q- What is the base year of the cost inflation index?

As per income tax law, the base year for the Cost Inflation Index is FY 2001-02. Previous to the amendment made by the Finance Act 2017, the base year was 1981-82.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.