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October 2, 2021
Cost Inflation Index for Financial Year 2019-20
Cost inflation index calculates the estimated rise in the cost of goods and assets year-by-year as a result of inflation. It is fixed by the central government in its official gazette to measure inflation. It is announced for each Financial Year but not based on Assessment Year. Hence, the applicable rate of CII will be for that particular financial year.
The price of a product increase overtime, and this brings down the purchasing power of money. For e.g. if 10 items can be bought for Rs. 1000 today, tomorrow you may only be able to buy 8 items at the same rate on account of inflation.
What is Cost of Inflation Index (CII)?
Cost Inflation Index is a measure of inflation, used to calculate long-term capital gains from the sale of capital assets. Capital gains is the profit that you make from selling an asset, which can be real estate, jewellery, stock, etc. The entire process – where the capital asset’s cost price is adjusted with the effect of inflation using the cost inflation index number is referred to as indexation.
The notification was published on 12th September, 2019 to announce the cost inflation index for the financial year 2019-20. The finance ministry stated that CII for FY 2019-20 has been set as 289. For the previous financial year CII was 280
The difference in the number is important as it would be used to arrive at the inflation adjusted while purchasing of assets and there by long term capital gains.
For e.g. you purchased a house in FY 2002-03 at the price of 40 lakh and want to sell it today i.e. FY 2019-20. Now the CII in 2002-03 was 105 and in FY 2019-20 when you want to sell the property the CII is 289 here the Idex cost would be (289/105) x 40 = 11,009,523. Hence, the Long term capital gain would be 7,009,523 i.e Index cost minus actual price(purchase price).
There are two things that individuals need to keep in mind regarding the cost inflation index.
Firstly, this number will be used to calculate inflation-adjusted cost only for those assets where inflation-adjusted (indexation benefit) is allowed. Therefore, the CII value cannot be used to arrive at LTCG/LTCL on equity mutual funds as they are taxed at a flat rate of 10 percent without indexation benefit. However, in case of LTCG/LTCL made on sale of debt mutual fund units or sale of property, land and so on, CII number can be used.
Know: Cost Inflation Index for all the years
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