How to Calculate Indexed Cost of Acquisition?

Capital gains are taxable as per the directives of Income Tax Department of India. If you have acquired capital gains from long term assets held for more than 3 years then you can calculate the indexed cost of acquisition.  In this answer I will explain the indexed cost of acquisition formula and calculation. 

Before learning how to calculate indexed cost of acquisition, let us understand the factors responsible to calculate Indexed Cost of Acquisition. The cost of acquisition is ascertained based on the Cost Inflation Index or CII for the year of transfer and CII for the year of sale, cost of acquisition.

Given below is the formula for calculating indexed cost of acquisition:

Let us understand how to calculate

index cost of acquisition with an example:

Suppose Rishabh sells his property for Rs. 3500000 in 2019 which he bought in 2012 for Rs. 2000000. He falls in the income tax bracket of 20%. This is how the indexed cost of acquisition calculation will go;

Index acquisition cost calculation = Purchase price of the property x CII of the financial year in which property was sold / CII of purchase year of the property

The CII for the financial year in which property was purchased was 200. The CII for the financial year in which property was sold was 280.

You can find the CII on the Income Tax Department website.

Here is how the calculation goes:

Index acquisition cost calculation = 2000000 x 280 / 200 = Rs. 2800000

Therefore the purchase price of the property as per the inflation calculation at the time of sale will be Rs. 2800000

I came to understand what the indexed cost of acquisition is quite recently. It is an adjusted value of the original purchase price of an asset that is accounted for inflation over time using a cost inflation index. If you are not sure about how to find indexed cost of acquisition, let me share with you a simple formula. 

(Index for the year of sale/ Index in the year of acquisition) x cost.

How to Compute Indexed Cost of Acquisition?

If you bought an apartment for Rs. 20 lakhs in January 2000 and sold it for Rs. 35 lakhs in January 2009, using the Cost Inflation Index (CII) method for tax calculation, the indexed cost of acquisition will be Rs. 29,92,288 (20,00,000 × 1.49). 

However, the long-term capital gain will be Rs. 5,07,712 (35,00,000 - 29,92,288). Tax using the indexation method is 20% of the gain, i.e., Rs. 1,01,542. Without indexation, the tax is 10% on the capital gain, resulting in Rs. 1,50,000. Indexation helps save taxes by adjusting the purchase price with current market prices, providing a more accurate reflection of gains and reducing tax liability.

You can calculate indexed cost of acquisition online in the

Here are the details you will need to provide there:

• Asset acquired on or before base year (2000-01)?

• Whether an asset is received without consideration from the previous owner (Section 47/49)?

• The asset is transferred or sold.

• Base Year

• Fair Market Value as of April 1, 2001

• Cost of Acquisition/ Improvement to Previous Owner

• Notional Cost of Acquisition

• Indexed Cost of Acquisition or Improvement

These things are complicated but once you put your data together and do the calculations, you can get a better idea.

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The Cost Inflation Index is determined to correlate prices to the rate of inflation, which means an increase in the inflation rate over time will cause prices to rise. The process for determining the indexed cost of acquisition has been properly explained by Miss Kritika. There are numerous comments to the same question, but none of them included the cost of acquisition formula for capital gain. Check out the formula for easy calculation below.

How to compute indexed cost of acquisition?

The process of calculating the cost of obtaining an item while taking into account the inflation rate that has accumulated since the asset was purchased is known as indexing. It is especially helpful when figuring out the amount of tax that must be paid on the gain from the sale of an asset. 

• You need to know the cost of acquisition as well as the years that an asset was bought and sold in order to compute the indexed cost of acquisition. 

• The term "acquisition cost" describes the expenses involved in addition to the price paid to acquire something.

• Determination of cost of acquisition is done by dividing sales and marketing costs by the number of new customers acquired.

• You can get the formula for indexed acquisition cost of the house from Shiv's response. 

Moreover, check out the capital gain formula for calculation below:

Full Value Consideration - (Cost of Acquisition + Cost of Improvement + Cost of Transfer).

Full Value of Consideration Received or Accruing - (Indexed Cost of Acquisition + Indexed Cost of Improvement + Cost of Transfer)

For determining the amount of tax that must be paid on long-term capital gains on assets like real estate property, knowledge of the indexed cost of purchase is very important. I hope you got an idea of formula to find cost of acquisition.

The indexing of acquisition costs is based on national inflation. Simply put, the cost of acquisition refers to the cost of purchasing the asset. If you keep the property for more than three years, you can calculate the cost using the inflation rate. The Cost Inflation Index, or CII, is used to determine the acquisition cost. You either make money when you sell a property or you lose money. You can index the cost of property if it is a long-term capital asset for the selling year. There is also a index cost of acquisition formula, which you must have found in the above responses.

The cost of acquisition of property is the sum paid by the assessee when the asset was first purchased. It covers capital outlays incurred in connection with the purchase or to complete the property's title. 

We must pay the government a significant sum of taxes when selling a property. We can avoid paying high taxes by adhering to the cost inflation index because inflation will cause the current worth of the property to decline as well. As a result, buyers will benefit because the capital gains will be less.

I hope this clarifies your query about cost of acquisition in capital gain. 

Home owners benefit from the indexation cost of acquisition in income tax in that the purchase price is readjusted to account for inflation. I would like to conclude my discussion here about the index cost of acquisition formula. I hope this helps:)

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The indexed acquisition cost is the cost of acquisition by applying the indexation benefit to calculate Long Term Capital Gains. While researching this topic, I came across Kritika’s answer and understood the calculation as well. I would still like to add some more points.

Indexation is a process to adjust the purchase price of a property or investment to show the effect of inflation on it. The

index cost calculation can be calculated by using a formula which is

Indexed cost of acquisition=

cost of acquisition multiplied by the cost inflation index (CII) of the year in which the asset is sold, divided by CII for the year in which the plot was first held by the previous owner

If you fail to understand it, I would suggest you to visit the governmental site of Income Tax Department which is:

And get the cost of acquisition by providing all the relevant details like

• Market value of asset

• When was the property acquired

• Asset transferred or sold

• Base year and more

And get the answer of

how to calculate cost of acquisition of property easily.

If you sell a property that you held for less than 3 years and gain profit after selling it, it will be considered as short-term capital gains and is taxable as per the income tax slab rate.

If the property was held for more than 3 years during the time of selling it, then the gains will be considered as long-term capital gain and will get taxed at 20% with indexation. So any profit coming to you after selling a property is in short taxable. 

This is all you should know about the indexed acquisition cost

Hi Buddy,

I have recently learned about the cost of acquisition in Income tax. However, I was wondering, what is Indexed cost of acquisition? It was during that time I found Kritika Maam’s answer. I am really impressed with the quality of her answer.

I have learned about the cost of acquisition in income tax. Where you can either gain money or lose money when you sell a home. If the property is a long-term capital asset, you can index the cost for the selling year.

The cost of acquisition to the transferee firm is the cost at which the asset was obtained when Capital Gains are not charged on a capital asset transfer between a subsidiary and a holding company or vice versa, but the requirements are later exceeded, and Capital Gains are assessed.

When the capital asset is the goodwill of a business or a Trademark or Brand Name associated with a business, the right to manufacture, produce, or process any article or thing, the right to carry on any business, tenancy rights, stage carriage permits, or loom hours, the cost of acquisition is the purchase price paid by the assessee, and it is nil if no such purchase price is paid.

Now coming to the indexed cost of acquisition is determined by the country's inflation rate. I completely agree with Kritika’s answer about

what is indexed cost of acquisition in income tax. She informed me that you can calculate the indexed cost of purchase if you have capital gains from long-term assets held for more than three years.

I would also like to appreciate her answer as it provided a correct formula regarding how to calculate cost of acquisition with indexation.

I would like to extend my gratitude towards her answer as it helped me with finding my CII on the income tax website.

I would like to conclude here, I hope people with the query of

what is Indexed cost of acquisition, go through Kritika’s answer, as the response would help them:)

You can calculate your EMI on a home loan using this,

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