Concept of Capital Gain and Cost Inflation Index

Over time, the inflation rate is likely to increase. It is sensible to consider the same while calculating
one's tax due and attempting to develop an index cost for capital gain. The Cost Inflation Index (CII)
is usually used to gauge inflation. The most recent Cost Inflation Index created by the Government
of India is used to calculate the long-term capital gain index.

Calculating the index cost for capital gain is helpful. So to speak -

● People must learn the indexed cost of an asset in order to determine long-term capital gains.
● An intended seller would have to multiply the purchase price of their property by the cost
inflation rate determined for the fiscal year (the year when the transfer is to be made).
● The numerical result would then require division by the CII number assigned for the year of
purchase.

For Instance,

If Mr Bushan bought a housing property on April 26, 2004, for Rs. 50 Lakh and sold it on July 26,
2018, for RS. 90 Lakh, the indexed cost of acquisition would be –

(Cost of acquisition x CII at the time of sale)/ CII at the time of purchase

(Rs 50 lakhs * 280)/ 113= 123.89 Lakhs

Henceforth, the capital gain would be = Rs. (123.89 - 90) lakhs= Rs. 33.89 Lakhs

The capital gain index chart is shown below.

Financial Year Capital Gain Index

2001-02 100

2002-03 105

2003-04 109

2004-05 113

2005-06 117

2006-07 122

2007-08 129

2008-09 137
2009-10 148

2010-11 167

2011-12 184

2012-13 200

2013-14 220

2014-15 240

2015-16 254

2016-17 264

2017-18 272

2018-19 280

2019-20 289

2020-21 301

2021-22 317

2022-23 331

Source: Income tax

Capital Gain Exemptions With Regard To Residential Property

The exemptions from capital gains are listed below.

● Section 54 exempts capital gains from tax on the sale of a single-family home. The tax
exemption is permissible if the funds from the sale are used to purchase another residential
property.
● Section 54F exempts capital gains on the sale of any asset. And the money from the sale is
used to purchase a house.
● Capital gains exemption on the sale of real estate under Section 54EC. Additionally, certain
bonds are purchased with the selling profits. The Rural Electrification Corporation or the
National Highway Authority of India (NHAI) issues these bonds (REC). Only when the criteria
are met does the tax exemption become valid.