Cost Inflation Index – Overview of CII, Calculation Table & Examples

Prices move. A flat booked in 2006 at ₹20 lakh rarely sells for the same figure today. India’s tax law recognises this drift in value and lets long-term taxpayers adjust their historical costs before calculating capital gains. That adjustment uses the Cost Inflation Index—abbreviated as CII. In practice, CII converts yesterday’s rupees into today’s rupees so tax falls on real appreciation, not on inflation’s push. Treated this way, the same sale looks fairer: the old purchase price is uplifted by the Cost Inflation Index, and tax applies to the genuine gain after that uplift.

What is Cost Inflation Index?

Advisers often hear a basic query: what is Cost Inflation Index? In simple terms, the Cost Inflation Index is a government-notified number used in capital gains to reflect inflation between the year a capital asset was acquired and the year it is transferred. The law refers to a schedule of CII values—one for each financial year—and tells taxpayers to re-state their original cost using those values where indexation is allowed. Put plainly, CII is the bridge that brings an old cost into the selling year’s price environment so the gain is measured on comparable rupees. The official Cost Inflation Index definition sits in section 48 (Explanation v) of the Income-tax Act, which the Central Board of Direct Taxes (CBDT) updates annually by notification.

For clarity, here is the Cost Inflation Index meaning in day-to-day decisions: if a house was bought ten years ago and sold this year, the original rupee cost is scaled up by CII, reducing the inflation component embedded in the sale price. The same logic applies to other eligible long-term capital assets. The method is mechanical, but the outcome is intuitive—tax on real growth, not on price drift.

Cost Inflation Index Table from FY 2001-02 to FY 2025-26

The numbers below constitute the official Cost Inflation Index table for indexation under the Act (base year 2001-02 = 100). Use the CII of the transfer year and the acquisition/improvement year for the formulae shown later.

These values are taken from the Income Tax Department’s published schedule of notified CII and are updated by CBDT every year; FY 2024-25 is 363 and FY 2025-26 is 376. Keep a copy of this Cost Inflation Index table handy when computing indexed costs.

How is Cost Inflation Index used in Income Tax?

Where indexation is permitted for long-term capital assets, CII is applied through two straight-line formulae:

• Indexed Cost of Acquisition
   = Original Cost × (CII of Year of Transfer ÷ CII of Year of Acquisition)
  
• Indexed Cost of Improvement
   = Improvement Cost × (CII of Year of Transfer ÷ CII of Year of Improvement)

These formulae convert historical rupees into the selling year’s rupees, raise the deductible cost, and thereby reduce the inflation element in gains. They work only for assets—and periods—where indexation is available under section 48.

Quick illustration (residential property).
 Purchase: FY 2006-07 at ₹20,00,000 (CII 122). Sale: FY 2024-25 at ₹70,00,000 (CII 363).
 Indexed Cost of Acquisition = ₹20,00,000 × (363 ÷ 122) ≈ ₹59,50,000.
 Ignoring other allowable costs, the long-term capital gain is about ₹10,50,000. The calculation is simple, and the inflation protection comes entirely from CII.

Improvement example.
 Suppose an improvement of ₹3,00,000 in FY 2013-14 (CII 220) and sale in FY 2025-26 (CII 376).
 Indexed Cost of Improvement = ₹3,00,000 × (376 ÷ 220) ≈ ₹5,13,000.
 Again, CII lifts an old expense to the selling year’s price level.

What is the Concept of the Base Year in Cost Inflation Index?

Every index needs an anchor. For the Cost Inflation Index, the base year is 2001-02, set to 100. All later CII values measure the level of prices relative to that base. If the CII reads 240 in FY 2014-15, it signals an index 2.4× the base level. For assets acquired before the base year, the law permits using the fair market value as on 1 April 2001 (subject to conditions) as the starting point, after which CII applies. The base-year construct gives a uniform yardstick for decades of calculations.

Why is the Base Year of Cost Inflation Index Changed to 2001 from 1981?

India originally used 1981-82 as the base year. By 2017, that anchor no longer matched market reality or available records. Union Budget 2017 therefore shifted the base to 2001-02, improving data reliability and reducing valuation disputes for very old assets. The change was legislated via Notification No. 44/2017 (S.O. 1790(E)) and related Finance Bill amendments, and it applies prospectively for assessments from 2018-19 onward. In practical terms, taxpayers with pre-2001 assets can choose fair market value as on 1 April 2001 (subject to the rules) and then apply CII going forward.

Why is Cost Inflation Index Calculated?

The purpose is fairness. Without indexation, a long-holding seller pays tax on inflation as if it were true profit. With CII, the indexed cost neutralises the inflation component and narrows the calculation to real wealth creation. The Cost Inflation Index thus protects long-term investors from paying tax on the mere passage of time while keeping the process formula-driven and consistent across years.

Who Notifies the Cost Inflation Index?

Each year, the Central Board of Direct Taxes issues a notification specifying the CII for the new financial year and continuing the table for earlier years. The Income Tax Department publishes this schedule on its website for public reference; for instance, FY 2024-25 is 363 and FY 2025-26 is 376 in the current schedule. When computing a transaction, the correct figure is the CII for the year of transfer as determined under the Act.

FAQs

1) What does CII mean in the context of income tax?

CII—the Cost Inflation Index—is the notified number used to restate historical costs into the selling year’s price level for long-term capital gains where indexation is allowed. By inflating the original cost and eligible improvements using CII, tax applies to real gains rather than to inflation. The schedule of values appears on the department’s website.

2) When was India’s Cost Inflation Index introduced?

Indexation for capital gains has been part of India’s framework since the 1980s, earlier with a base year of 1981-82. In 2017 the base was reset to 2001-02 (value 100) to reflect more contemporary market data and simplify valuation. Since then, CII has been notified annually.

3) What is the formula for calculating the cost of indexation?

Use CII like a multiplier:
 • Indexed Cost of Acquisition = Original Cost × (CII of Transfer Year ÷ CII of Acquisition Year)
 • Indexed Cost of Improvement = Improvement Cost × (CII of Transfer Year ÷ CII of Improvement Year)
 Apply these only where indexation is permissible for the asset and period.

4) What is the purpose of applying Cost Inflation Index?

Applying the Cost Inflation Index removes the inflation component from long-term gains, ensuring the tax base reflects real appreciation after converting past rupees to current rupees via CII.

5) What is the cost inflation index for 2024-25?

For FY 2024-25, CII is 363 (FY 2023-24: 348; FY 2025-26: 376). Always pick the correct year from the latest schedule while computing indexed costs.

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