Cost Inflation Index is announced by the central government for every financial year, after referring to the CPI (Consumer Price Index) for the immediately preceding year. In simple language, Cost Inflation index factors in the change of inflation in capital assets year on year. While calculating long-term Capital gains tax government has allowed adjusting the cost price of the capital asset with the inflation numbers through Cost Inflation Index, and come up with the Indexed cost of acquisition of that capital asset. Now to calculate the actual gain, one has to deduct the indexed cost of acquisition rather than the original cost of the asset to come out with the Profit number.

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