|Financial Year||Cost Inflation Index (CII)|
|Any time before 1st April 1981||100|
What is Cost Inflation Index (CII)
Cost inflation index is the index for the inflation rate in the country. CII is issued by the Central Board of Direct Taxes (CBDT).
What is use of CII
CII is used while calculating long term capital gains. CII for the year in which you have purchased the asset and the year in which asset is sold are considered while calculating capital gains. The cost after indexing is deducted from the sale price for calculation of capital gain. So the capital gain tax gets reduced.
However benefit of cost indexing is available only in case of long term capital gain. If the asset is purchased before 1st April 1981 then the cost inflation index for the year 1981-82 i.e “100” should be taken as CII for that year. If you have made improvement of the asset, then you need to adjust the cost inflation index with the multiplying with the CII of the year the improvement was made.
Cost after Indexing = Cost before indexing * CII for sale year/CII for purchasing year
Capital Gain = Sale price – Cost after indexing
Read more on How to Calculate Long Term Capital Gain
Source: Income Tax Website