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# Cost Inflation Index

## Cost Inflation Index

### What is Cost Inflation Index?

An asset that was purchased in the year 2013 would normally be more expensive than an Asset that was
purchased in the year 2005. The reason for the same is that Inflation keeps on increasing year after year as a Result of which Prices of most of the Assets increase year after year.
For eg: Ram purchased an Asset in the year 2005 for Rs. 100. Now in the year 2013, he sells this for Rs. 200. Simple mathematics says that the Profit on such a transaction is Rs. 100 but would it be justifiable to enforce taxes on this Rs. 100 as the sale price also includes a component of Inflation? To remove the Inflation component from this profit, the Govt. has introduced the concept of indexing the cost to adjust for inflation in the value of Assets held for more than 36 months. The Indexing shall be done to the Cost of Acquisition and Cost of Improvement by the applying the Cost Inflation Index Factor as explained below.

For long-term capital gains, indexed cost of acquisition and indexed cost of improvement is deducted instead of cost of acquisition and cost of improvement.

The cost of acquisition and cost of improvement is indexed based on certain percentage of consumer price index.

The following table shows Cost Inflation Index as notified by the Central Government:

Financial YearCost Inflation Index
1981-82100
1982-83109
1983-84116
1984-85125
1985-86133
1986-87140
1987-88150
1988-89161
1989-90172
1990-91182
1991-92199
1992-93223
1993-94244
1994-95259
1995-96281
1996-97305
1997-98331
1998-99351
1999-00389
2000-01406
2001-02426
2002-03447
2003-04463
2004-05480
2005-06497
2006-07519
2007-08551
2008-09582
2009-10632
2010-11711
2011-12785
2012-13852
2013-14939
2014-151024

### What is the cost of acquisition and cost of improvement for years prior to 1981-82?

For capital assets that became the property of the owner before April 1, 1981, either the actual cost of the capital asset or the fair market value of the asset as of April 1, 1981, can be taken.