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Cost Inflation Index for Financial Year 2019-20

Cost Inflation Index for the Financial Year 2019 20

CBDT has announced, in a recent notification, the Cost Inflation Index for the Financial Year 2019-20 vide Notification No. 63/2019 dated 12th September, 2019. Cost Inflation Index for Financial Year 2019-20 is declared 289. Refer to the notification below:

MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
Notification No. 63/2019- Income Tax

New Delhi, the 12th September, 2019
(INCOME-TAX)

S.O. 3266(E).—In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Official Gazette, vide number S.O. 2413(E), dated the 13th June, 2018, namely:‑

2. In the said notification, in the Table, after serial number 18 and the entries relating thereto, the following serial number and entries, shall be inserted, namely:

Sr. No. Financial Year Cost Inflation Index
(1) (2) (3)
“19 2019-20 289”

3. This notification shall come into force with effect from the 1st day of April, 2020 and shall accordingly apply to the Assessment Year 2020-2021 and subsequent years.

[Notification No. 63/2019/F. No. 370142/11/2019-TPL]
PRAVIN RAWAL, Director
(Tax Policy and Legislation)

What is Cost Inflation Index?

Let us take this opportunity to understand more about cost inflation index.

  • Cost Inflation Index (CII) is used for calculating the estimated increase in the prices of goods and assets year-by-year due to inflation.
  • In other words, Cost Inflation Index is calculated to match the prices to the inflation rate. An increase in the inflation rate over a period of time will lead to an increase in the prices.
  • In turn, increase in prices of goods over time results in a fall in the purchasing power (quantity of goods that one unit of money can buy) of money.
  • Let us take an example: If 2 units of goods could be bought for Rs.100 today, tomorrow only 1 unit might be available for Rs. 100 due to increasing inflation.

Determination of Cost Inflation Index:

  • Cost Inflation Index is determined based on increase in Consumer Price Index.
  • Consumer Price Index compares the current price of a basket of goods and services (which represent the economy) with the price of the same basket of goods and services in the previous year to calculate the increase in prices.
  • Cost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year.
  • Central Government specifies the cost inflation index by notifying in the official gazette.

Cost Inflation Index Table:

Financial Year Cost Inflation Index (CII)
2001-02 (Base Year) 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
2011-12 148
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
2018-19 280
2019-20 289

Concept of Base Year:

  • The base year is the first year of Cost Inflation Index and has index value as 100. Index of all other years is compared to base year to see the increase in inflation percentage.
  • For any capital asset purchased before the base year of Cost Inflation Index, taxpayers can take the purchase price as higher of the “actual cost or Fair Market Value (FMV) as on 1st day of the base year. Indexation benefit is applied to the purchase price so calculated.
  • Fair Market Value is based on the valuation report of a registered valuer.


How Indexed Cost of Acquisition is determined?

Indexed Cost of Acquisition can be calculated based on below formula:

Indexed Cost of Acquisition = (Cost Inflation Index for the year of sale X Cost of Acquisition) / CII for the year of purchase or CII for the year 2001-02, whichever is later.

How Indexed Cost of Improvement is determined?

Indexed Cost of Improvement can be calculated based on below formula:

Indexed Cost of Improvement = (Cost Inflation Index for the year of sale X Cost of Improvement) / CII for the year in which improvement was done.

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