What Is The Full Form Of CII In Income Tax?
CII full form in income tax is Cost Inflation Index. It is a tool used by the Indian government to adjust the original cost of assets for inflation when calculating taxes on profits made from selling assets after a long time. This index is very useful for those who sell such assets, for they can calculate the real profit after the realization of the rise in prices over the years. This index is updated annually by the Central Board of Direct Taxes (CBDT) to match the inflation rate of that year.
How Is the Cost Inflation Index Used in Income Tax?
The CII helps calculate the adjusted cost of buying and improving assets. When a person sells an asset, the cost paid for buying an asset and the money spent on its improvements are added up with the CII for that year. This figure will be divided by the CII for the year in which it was bought or improvements made. This new figure is then deducted from the selling price to find out the profit that is to be taxed.
Why Is the Base Year Important for the CII?
The base year for the CII is very important because it is the year against which all changes in price levels are measured. The current base year is 2001-02, and in this year, the value is fixed at 100. The value for all other years, hence, is computed on the basis of this year to indicate how much prices have risen since then.