How to Calculate capital Gains using CII
Cost Inflation Index is used for calculating Long term Capital Gain. Every year, Income Tax department notifies Cost Inflation Index. CII is very useful to calculate Long Term Capital Gain Tax.
Capital Gain = Sales Consideration – Indexed Cost of Acquisition
Indexed Cost of Acquisition = Actual Purchase Price * (Index in year of Sale / Index in Year of Purchase)
If the property is purchased before 2001, then you need to get the Fair market value of the property in 2001 and the use that for Indexed cost. In such cases,
Indexed Cost = Fair Market value in 2001 * (Index in year of Sale / Base Index i.e. 100)
In the post (further below), I have explained how can you get the fair market value of the property in 2001 (in case the property is acquired before 2001).
New Cost Inflation Index (CII) Chart / table for 2019-2020
New CII Index Numbers: (applicable from 2017) – Base year is now changed from 1981 to 2001
Budget 2017 has changed the base year of Indexation from 1981 to 2001. Read details & impact on Investors & capital gain.
The cost inflation index notified are as under :
From April 2018, tax rules have changed and a penalty of upto Rs 10000 will be levied if the return is not filed on time. Also, the ITR revision time limit is also changed from 2 years to 1 year. See details
Example 1 : How to Calculate Indexed Cost of Acquisition Asset
Purchased House on 01-Jul-2004 = Rs 20 Lakh
|Indexed Cost of Property||Actual Purchase Price * (Index in year of Sale / Index in Year of Purchase)|
|Rs 20 Lakh * (280 / 113) = Rs 49.55 lakhs|
|Sale Amount||75 Lakh|
|Capital Gain||75 Lakh – Rs 49.55 lakh = Rs 25.44 lakhs|
Purchased House on 01-Jul-1999 = Rs 25 Lakh
Sold House on 01-May-2018 = Rs 75 Lakh
As the house is purchased before the new base year (2001), you will need to get the Fair Value of property as on 1st April 2001.
You can then use that value to calculate the indexed cost
Indexed Cost: = Fair Value (in 2001) * (280/100)
Sale Amount= Rs 75 lakh
Capital Gain = Rs 75 lakh – Indexed cost (as above)
How to calculate Fair Market Value of the Property
There is no fixed formula to calculate the Fair Market Value of the property. However, you can use following methods to calculate:
- Check average sales price of similar properties in your area that was sold in 2001 – It may be difficult to know or find
- Check the circle rates, if available: Circle rates are fixed by the state government or the local development authority and normally used for stamp duty and registration charges. These are usually lower than the normal market value.
- Check real estate indices: Indices such as the National Housing Bank’s (NHB’s) Residex, and two indices of the Reserve Bank of India (RBI)—Housing Price Index (HPI) and Residential Property Price Index (RPPI) can give an idea about the prevailing pricing trends in various cities
Registered Valuer (Recommended) – You can take help of Government-approved valuers follow a standard process for the valuation and provide a detailed report. Fee and charges that a valuer can charge are also prescribed under the Act, and depend on the value of an asset. For instance,
- for first the Rs5 lakh of asset value, fee would be 0.50% of the value.
- For next Rs10 lakh, it would be 0.20%,
- for next Rs40 lakh 0.10% and 0.05% of the value thereafter
So, for e.g. for a property valued at Rs 70 lakhs, the value may charge approx Rs 10000.
How to save Capital Gains Tax
|Financial Year||Cost Inflation Index||Financial Year||Cost Inflation Index|
|2017-2018||to be announced|
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