The Cost Inflation Index — The CBDT Series That Converts Cost to Indexed Cost
The Cost Inflation Index (CII) is a notified series of inflation multipliers published annually by the Central Board of Direct Taxes (CBDT) under the powers granted by Section 48 of the Income Tax Act, for use in computing the indexed cost of acquisition and the indexed cost of improvement for long-term capital gain.
The base year for the current CII series is FY 2001-02 = CII 100. The indexed cost of acquisition is determined by applying the CII for the year of sale against the applicable acquisition-year CII, or the Section 55(2)(b) FMV as on 1 April 2001 where that substitution applies.
The CII Series — Selected Reference Points
The notified Cost Inflation Index provides the inflation multipliers used to translate an eligible historical cost into an indexed cost for the applicable capital gain computation.
Every indexed-cost calculation begins with identifying the correct acquisition cost or eligible 1 April 2001 FMV, followed by application of the relevant CII relationship.
The CII and Section 55(2)(b): Why the Base Value Drives the Indexed Cost
The Government Approved Capital Gain Valuer’s Section 55(2)(b) certificate establishes the FMV as on 1 April 2001, which is the CII base value for all pre-2001 acquisitions.
Every rupee of FMV established at 1 April 2001 becomes ₹3.63 of indexed cost in FY 2024-25 (CII 363 ÷ CII 100).
For pre-2001 properties and collections being sold in 2024-25, a Government Approved Capital Gain Valuer’s Section 55(2)(b) certificate that establishes a ₹10 lakh higher FMV as on 1 April 2001 produces a ₹36.3 lakh higher indexed cost in 2024-25.
This reduces the Method B (20% with indexation) capital gain by ₹36.3 lakh and the tax by ₹7.26 lakh. The quality and defensibility of the Section 55(2)(b) certificate is therefore directly and significantly commercially significant in the transitional computation.
The example illustrates why the 1 April 2001 base value can have a substantial commercial effect on the indexed-cost computation.