The people will know that the price of the goods and the properties will increase gradually each and every year. This is because as you all know that the food packets that are bought in the year a decade before are less value than the current price of the packet. Some people do not know about the exact value of the price that should be sold in the current situation. The cost inflation index will be more helpful for the people to sell their property and also the goods in the correct value. This is the kind of calculation that gives the correct value of the price that has been increased.
What is the use of the CII in the income tax act?
The many people like to buy the long term capital assets these kinds of people can able to simply buy at the net value that will not increase gradually due to the inflation increase. If you are the person likes to sell your long term properties then you will get the medium gain as because of the increase in the year. This means that you have to pay the high income tax. This cost inflation index will be more beneficial for the people as they no need to pay much tax. But they will get a moderate profit.
The index value will start from the year 2001 and above only. So the properties that have been brought before these years will be calculated with the help of the actual cost of that year or the value of the starting year. This is much helpful for the people to buy and purchase the properties in the desirable rate and also they can able to estimate the capital gain more easily. Also, the cost of improvement can be calculated by dividing the cost inflation index on the year of improvement with the year of transfer. This will give the exact value of the improvement value.
The calculation of this CII acquisition is done by multiplying the CII of the year in which price is transferred and then dividing them with the CII of the year in which the asset is first held. The following are the steps to calculate the CII such as you need to see the average price of the several products across a few years and enter the consumer price index. You should also choose the period and now find the price of the product at the earlier date and also for the later date.
What are the points that are needed to be followed?
Suppose if you have received the property later but have purchased it before itself then the cost inflation index will be calculated on the year of received only. Also, the people should have to keep in mind that the improvement value that is obtained before the base year of the inflation index will be ignored. The index benefit is suitable only for the indexation bonds or sovereign gold bonds which are issued by the reserve bank. You will not get the benefit apart from these bonds.