FY 16-17 Cost Inflation Index out: Start computing your indexed capital gains

Tax payers can now start computing their indexed Long term Capital Gains for the FY 2016- 2017 as the Cost Inflation Index (CII) for the year has been published by the government. The Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes has published the CII in the Gazette of India vide Notification No. 42 /2016/F.No.142/5/2016-TPL dated 02-06-2016

Cost Inflation index is a number used to calculate the inflation-adjusted or inflation-indexed value of a monetary number. In taxation, it is used to calculate the inflation indexed cost of acquisition of a capital asset where the inflation adjusted cost of acquisition of the asset is to be calculated. This indexed cost of acquisition is used in calculating indexed capital gains in case of long term capital gains. . The Central Government notifies this number for each financial year. This CII helps to factor in the time value of money whenever the assessee transfers/sells his long term capital asset. The CII for FY 2016-17 is 1125.

For example: Mr. A sells a House property for Rs 200 lakhs which he acquired 10 years back for Rs 5 lakhs. Without Indexation, the Capital Gains would have amounted to Rs 195 lakhs (Rs 200- 5), but with the concept of indexation the cost of acquisition of the asset (Rs 5 lakhs) would now become much more and hence the Capital Gains computed would become significantly less.

Formula for computing indexed cost is:

Indexed cost = (Index for the year of sale/ Index in the year of acquisition) X (Cost of acquisition)
The following table provides the CII as notified by Central Government from 1981-82 onwards

If you have engaged in a transaction resulting in Capital Gains, then make use of the CII, compute your taxes and pay your advance tax (if applicable) for FY 2016 -17 as the last date for paying its installment is just 2 days from now (i.e. June 15th, 2016).