COST INFLATION INDEX

The index measures changes in cost for production factors in

housing construction, that is, materials of various types, equipment,
salaries, transport, etc. The index does not take account of the
market situation, but is based on measurements of a number of
goods and salaries.
Why is Cost Inflation Index
calculated ?

Cost Inflation Index is calculated to match the prices to the inflation

rate. In simple words, an increase in the inflation rate over time will
lead to a rise in the prices.

Who notifies the Cost Inflation

Index
The Central Government specifies the cost inflation index by notifying in the official

gazette.
Cost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban)
for the immediately preceding year.
*Consumer Price Index compares the current price of a basket of goods and services
(which represent the economy) with the cost of the same basket of goods and services
in the previous year to calculate the increase in prices.
What is the current Cost
Inflation Index
 How is Cost Inflation Index used in
Income Tax

Long-Term Capital Assets are recorded at cost price in books. Despite increasing
inflation, they exist at the cost price and cannot be revalued. When these assets are
sold, the profit amount remains high due to the higher sale price as compared to
purchase price. This also leads to a higher income tax. The cost inflation index is
applied to the long-term capital assets, due to which purchase cost increases,
resulting in lesser profits and lesser taxes to benefit taxpayers. To benefit the
taxpayers, cost inflation index benefit is applied to the long-term capital assets, due
to which purchase cost increases, resulting in lesser profits and lesser taxes
 What is the concept of base year in Cost
Inflation Index

The base year is the first year of the cost inflation index and has index value as
100. Index of all other years is compared to the 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. FMV is based
on the valuation report of a registered valuer.
How is indexation
benefit applied to long-
term capital assets
 Construction Economics ENR publishes both a
Construction Cost Index and Building Cost index
that are widely used in the construction industry.
This website contains an explanation of the indexes
methodology and a complete history of the 20-city
national average for the CCI and BCI. Both indexes
have a materials and labor component.
 Construction cost index for buildings (CCI)
(input price index)

The index measures changes in cost for production factors in housing construction, that is,
materials of various types, equipment, salaries, transport, etc. The index does not take account
of the market situation, but is based on measurements of a number of goods and salaries. Index
figures are calculated for multi-dwelling buildings, collectively built one- or two-dwelling
buildings and agricultural buildings in total and by major type of cost.
T
THHA
ANNK
KYYO
OUU