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Indexing is wrong to me

yasaswi gomes (My grammar is 💯 good I) (7290 Points)

15 July 2021

Hi,

I recently learnt about CII used for measuring fair value changes used for selling properties.

I read CII table and for 2011 it is 200₹ and 2021 it is 300₹.

House was purchased in 2011 for 10,000₹ as per the CII

Now when I am selling it, value of home in 2011*CII for 2021.

Why should 2021 CII be divided with 2011 CII? Any mathematical principle?

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7 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 15 July 2021

It is the rule prescribed by Income Tax authorities.

Sales year CII is to be taken as numerator and purchase year CII as denominator.

Purchase value is divided by CII of purchase year and multipled by CII of sales year to check the actual value. of property as on sales year

means

CII for 2011 is 200 and purchase value is 10000

so cost of acquisition will be 10000 divided by 200

CII of 2021 is 300

so for the year 2021 actual value of property in that year CII of 2021 should multipled to 10000 divided by 200*300

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 15 July 2021

Sorry for posting my query in a wrong way, I meant there should be CII tables because it is time consuming to revalue 100 land and buildings for my company. Then all I have to do is, 10000*CII value

CMA Poornima Madhava (CMA) (13112 Points)
Replied 15 July 2021

The base value is included in the denominator because w.r.t. to this base value (index), the current value adjusted for inflation is computed. Otherwise we would not have any basis to compute inflation rate.

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