Cost Inflation Index

    The existing provisions contained in section 48 prescribe the mode of computation of income chargeable under the head “Capital gains”. Clause (v) of the Explanation to the said section defines the term “Cost Inflation Index” (CII) which in relation to a previous year means such index as may be notified by the Government having regard to seventy-five percent of average rise in the Consumer Price Index (CPI) for urban non-manual employees (UNME) for the immediately preceding previous year to such previous year.

     The release of CPI for UNME has been discontinued. Accordingly, it is proposed to amend the said clause (v) of the Explanation to section 48 to provide that “Cost Inflation Index” in relation to a previous year means such index as may be notified by the Central Government having regard to seventy-five percent of average rise in the Consumer Price Index (Urban) for the immediately preceding previous year to such previous year.

     This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to assessment year 2016-17 and subsequent assessment years.

[Clause 19]

Cost Inflation Index definition updated to reference CPI (Urban), altering the indexation basis for capital gains computation. The amendment replaces the discontinued CPI for urban non-manual employees with the Consumer Price Index (Urban) as the CPI series to be used when the Central Government notifies the Cost Inflation Index, retaining the prior requirement to have regard to seventy-five percent of the average rise in the CPI (Urban) for the immediately preceding year; the change is effective from 1 April 2016 and applies to assessment year 2016-17 and thereafter.