Cost Inflation Index Table is very important for the purpose of payment of capital gains tax and is released by the Income Tax Department every year.

Cost Inflation Index Table From 1989 To 2015-16 For Calculation Capital Gains Tax

A look at the table above and you would realize that inflation has eaten away into the value of money. If you bought a property for Rs 1 lakh in 1982-1983 and sold the same for Rs 25 lakh in 2015-16, why should you pay capital gains tax on the entire profit of Rs 24 lakh, as there has been an inflation.

Hence, the Income Tax Department comes up with a cost inflation index, which helps calculate capital gains with the help of the index and pay tax accordingly.

How to calculate capital gains with cost inflation index?

Let us say that you purchased an apartment for Rs 20 lakhs in financial year 1985-86 and sold the same for Rs 75 lakhs in 2015-16. Then you do not have to pay capital tax on the profit i.e. Rs 75 lakhs-Rs 25 lakhs. But, your capital gains tax would be calculated as follows:

Actual Cost Of Purchase x Cost inflation Index On year of Sale/Cost Inflation Index On Year Of Purchase.

So, capital gains would be Rs 20 lakhs x 1081/133. This would be far higher than the value of sale, so you would not have to pay capital gains.

You need to calculate your tax based on the above formula before paying a tax. In case you do not want to pay the capital gains tax you can invest in another house or in capital gains tax saving bonds. Read more on how to save capital gains tax

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