Hello. In this post, we will discuss Cost Inflation Index for AY 2020-21 or FY 2019-20.
But first, we will take a look at what cost inflation index is and why it is important.
Meaning of Cost Inflation Index
The cost inflation index (CII) is a way of measuring inflation. It is used in the computation of long-term capital gains w.r.t the sale of assets. Since the price of a capital asset likely increase in between the years of purchase and sale, selling the asset would net the owner a significant amount.
Since the government levies tax on such transactions, the owner would have to pay a considerable amount as tax on these transactions.
In order to reduce the amount of tax, the selling price of the asset can be indexed so as to consider the asset’s current value, taking into consideration the inflation reducing its value. This way, the profit derived from the sale would be lower, thus reducing the capital gains payable.
The New Cost Inflation Index for the financial year 2019-20 is 289. The CBDT has also changed the base year from 1981 to 2001. So currently, 2001-02 will be taken as the base year for calculation. In the below table, the new indices are specified.
Cost of Inflation Index from FY 2018-19 or AY 2019-20 for Long Term Capital Gains
|Financial Year||Cost Inflation Index|