The cost of inflation index (CII) for the financial year 2020-21 has been notified by the Ministry of Finance. The ministry has set the Cost Inflation Index FY 2020-21 as 301. For the previous FY 2019-20, CII value was 289.
The rate of inflation for indexation purposes is specified by the Indian Government for every financial year.
The base year is considered as 2001-02.
The base year was shifted from 1981 to 2001 in Budget 2017.
This CII number is important as it is used to arrive at the inflation adjusted purchasing price of assets (indexed cost of acquisition) which have been sold or planned to be sold in FY 2020-21.
The indexed cost of acquisition is used in the calculation of Long-term capital gains (LTCG) or Long Term Capital Losses (LTCL).
Kindly note that CII is used to calculate inflation-adjusted cost only for those assets where inflation-adjusted (indexation benefit) is allowed. For example, in the cases of debt mutual funds, real-estate property, gold etc.,
The CII value cannot be used to arrive at LTCG/LTCL on equity mutual funds. Index benefit is not allowed in case of bonds or debentures except capital indexation bonds or sovereign gold bonds issued by the RBI.
Latest Cost Inflation Index FY 2020-21 | CII Chart AY 2021-22
Below is the table of Cost Inflation Index numbers, as stipulated by the Income Tax Department. You can take values from the table to compute the indexed or inflation-adjusted cost of acquisition.
How to Calculate the Indexed cost of purchase or indexed cost of Acquisition (ICoA)?
The indexed cost is calculated with the help of a table of cost inflation index as given above.
Divide the cost at which you purchased the Property/Investment by the index as on the date of the purchase. Multiply this by the index as on the date of sale.
ICoA = Original cost of acquisition * (CII of the year of sale/CII of year of purchase)
Let’s say you have invested in a debt fund in August 2014. Your investment amount was Rs 2,00,000 (20,000 units @ Rs 10 each). Six years later, you redeemed your investments in July 2020, at a value of Rs 3,00,000 ( 20,000 units @ Rs 15 each).
Hence, when you sold your investments, the value of your investments was Rs 3,00,000. Your investment made capital gains worth Rs 1,00,000. However, you need not pay tax on this entire amount of Rs 1,00,000.
All you need to do is apply the formula.
- Cost of acquisition is Rs 2 lakh.
- CII number for purchase year (2014-15) was 240.
- CII during sale year (2020-21) is 301.
This would mean that your indexed cost price of acquisition would be – (2,00,000 * 301/240) = Rs 2,50,833.
As again, your Long term capital gains would come down to Rs. 49,167 (Rs 3,00,000- Rs.2,50,833), you will be taxed 20% of this amount (as compared to Rs 1,00,000 without indexation) which will again, greatly reduce your tax obligations.
Thus, with Indexation, you can enjoy the benefits of your own investments without losing an excessive amount of taxes.
CII Index Value for FY 2020-21 / AY 2021-22 | Notification
Below is the notification issued by the Ministry of Finance on Cost Inflation Index for FY 2020-21.
Continue reading:
- Income Tax Deductions List FY 2020-21 | New Vs Old Tax Regime AY 2021-22
- What is Indexation of Mutual Funds and why is it important for you?
- How to save Capital Gains Tax on Sale of Land / House Property?
(Post first published on : 03-July-2020)
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I booked residential property in 2015made some advance payment and got allotment letter on making advance payment . The position of flat will be given in march 2021. The balance payment of 40 lacs is to be made before I get possesion / the builder makes sale deed iny name
I sold my existing (old) property (which was purchased in 2007)in December 2020. Capital gain on this old property which was sold in dec.2020 works out to be 30 lakhs. please guide can I get the exemption / benefit. Also inform what will be the date of purchase of new property date of allotment which is dated 2015 Ordate of sale deed which will be march 2021
Thanks in anticipation
Dear Ravi,
You may kindly go through below articles :
* How to calculate Holding Period & Capital Gains on sale of an Under-Construction property?
* How to save Capital Gains Tax on Sale of Land / House Property?
Nice article! But I’ve one confusion.
I’m planning to invest in Bharat-Bond ETF July-2020 11Y plan. But I’m confused about taxation, as I’ve never invested in debt fund before. Please help.
Also I was back calculating CII from income-tax govt. website data.
For test case if I had invested 1 Lakh in Debt-bond/ETF 11Y ago in FY2009 and sell in FY2020, then CII are 148 and 301 respectively. So my indexed cost comes as 301/148 * 1 Lakh = 2.03 Lakh. But my sell value maybe maximum 1.7 Lakh on 1L investment. In that case as per indexed calculation it’s coming as -33k (2.03-1.7L) capital loss. But in reality I’m in +70k (1.7-1L) net gain.
Is my above calculation correct for tax calculation ?
Dear Sanjay,
Yes, your understanding is correct!
But note that this (indexation) option can only be availed if the LTCG is from the sale of listed bonds, units of a debt mutual funds, non equity ETFs or from the maturity of a zero coupon bonds only.
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