Cost Inflation Index for Capital Gain Computation

Expla­na­tion (iii) to sec­tion 48 defines the term “indexed cost of acqui­si­tion” as the amount which bears to the cost of acqui­si­tion, the same pro­por­tion as the cost infla­tion index for the year in which the asset is trans­ferred bears to the cost infla­tion index for the first year in which the asset was held by the assessee or for the year begin­ning on April 1, 1981, whichev­er is later.

For com­put­ing long-term cap­i­tal gains cost infla­tion index is nec­es­sary. The cap­i­tal gains will be com­put­ed after deduct­ing the indexed cost of acqui­si­tion & Indexed Cost of Mod­i­fi­ca­tion from the full val­ue of con­sid­er­a­tion. The cost of pur­chase of the asset will be increased by apply­ing the cost infla­tion index (CII).

The cost infla­tion indices for the finan­cial years so far have been noti­fied as under: