Complete Understanding Of Cost Inflation Index (CII)

CII or Cost Inflation Index refers to the numbers issued by the Income Tax Department in each year’s budget depicting the level of inflation for the relevant Financial Year. These indexes are of high importance due to change in the value of assets which were purchased in previous years but sold now. Say, we purchased a house for Rs 20,00,000 and we are selling it today for 30,00,000. So, our profit, in this case, is Rs 10,00,000. But, don’t you find it a bit inappropriate because due to the highly increased rate of inflation our house which was then purchased for Rs 20,00,000 must be of higher value currently. What is this higher value?? I would say it is Rs 22,00,000 you might say it to be 25,00,000 and somebody might quote some other value. To solve out these ambiguities Income Tax department came out with the Cost Inflation Index. CII is issued for every financial year in the Budget. One calendar year (i.e. the year 2001 currently) being the base year. To give effect to appreciation in the value of an asset due to inflation following calculation needs to be done Calculation of Indexed Cost.