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Explanation of Cost Inflation Index (CII)
The price of a product increases overtime, and this brings down the purchasing power of money. The Purchasing power of money can be referred as the quantity of goods that one unit of money can buy. Say, if 5 items can be bought for Rs. 500 today, tomorrow you may only be able to buy 4 items at the same rate on account of inflation. Cost inflation index calculates the estimated rise in the cost of goods and assets year-by-year as a result of inflation. It is fixed by the central government in its official gazette to measure inflation. Section 48 of the Indian Income Tax Act, 1961, defines the index as notified by the government every year. Cost Inflation Index is a measure of inflation, used to calculate long-term capital gains from sale of capital assets. “Capital Gains” is the profit that you make from selling an asset, which can be real estate, jewellery, stock, etc. The entire process - where the capital asset’s cost price is adjusted with the effect of inflation using the cost inflation index number - is referred to as “INDEXATION”. Cost Inflation Index (CII) is used for calculating the estimated increase in the prices of goods and assets year-by-year due to inflation. CII is calculated to match the prices to the inflation rate. In simple words, an increase in the inflation rate over a period of time will lead to an increase in the prices.

How is Cost Inflation Index used in Income Tax?
Long-Term Capital Assets are recorded at cost price in books. Despite increasing inflation, they exist at the cost price and cannot be re-valued. When these assets are sold, the profit amount remains high due to the higher sale price as compared to purchase price. This also leads to a higher income tax. To benefit the taxpayers, cost inflation index benefit is applied to the long-term capital assets, due to which purchase cost increases, resulting in lesser profits and lesser taxes.

What is the concept of base year in Indexation?
The base year is the first year of Cost Inflation Index and has index value as 100. Index of all other years is compared to base year to see the increase in inflation percentage. For any capital asset purchased before the base year of Cost Inflation Index, taxpayers can take the purchase price as higher of the “actual cost or Fair Market Value (FMV) as on 1st day of the base year. Indexation benefit is applied to the purchase price so calculated. FMV is based on the valuation report of a registered valuer. Initially, 1981-82 was considered as the base year. But, taxpayers were facing hardships in getting the properties valued which were purchased before 1st April 1981. Tax authorities were also finding it difficult to rely on the valuation reports. Hence, the government decided to shift the base year to 2001 so that valuations can be done quickly and accurately. As such, for a capital asset purchased before 1st April 2001, taxpayers can take higher of actual cost or FMV as on 1st April 2001 as the purchase price and avail benefit of indexation. Capital gains is divided into short-term and long-term capital gains depending upon the period for which an asset is being held and method of computation varies based on the nature of capital gain. The method for computing the capital gains is as follows:

Short term capital gain

Long term capital gain

Sale consideration
Less: (a) Cost of acquisition (b) Cost of improvement (c) Expenditure incurred in connection with transfer

Sale consideration

Less : (a) Indexed cost of acquisition (b) Indexed cost of improvement (c) Expenditure incurred in connection with transfer

Long-term capital gain is computed by deducting indexed cost of acquisition and indexed cost of improvement. An asset held for a period of 36 months or less is a short-term capital asset. The criteria of 36 months have been reduced to 24 months for immovable properties such as land, building and house property from FY 2017-18. An asset that is held for more than 36 months is a long-term capital asset. The reduced period of the aforementioned 24 months is not applicable to movable property such as jewellery, debt-oriented mutual funds etc. They will be classified as a long-term capital asset if held for more than 36 months as earlier. Equity Mutual Funds, Shares, Bonds, Debentures, Government Securities, etc, when held for a period of more than 12 months, are considered as long-term capital asset.

Indexation / CII Tables:
The Cost of Inflation Index as notified by the Government, U/s 48 of the IT Act, from time to time for the purpose of calculating and availing the Indexation benefit is as provided below: Refer the below link to view CII table prior to Finance Act 2017 having base year as 1981.
https://www.incometaxindia.gov.in/Documents/Cost-Inflation-Index-upto-FY-2016-17.htm

Refer the below link to view CII table notified by the Government with the base year as 2001-02 according to the Finance Act 2017.
https://www.incometaxindia.gov.in/charts%20%20tables/cost-inflation-index.htm

How is indexation benefit applied to long-term capital assets?
When the indexation benefit is applied to “Cost of Acquisition” (purchase price) of the capital asset, it becomes “Indexed Cost of Acquisition”. Indexed Cost of Acquisition = { (Cost of Inflation Index (CII) for the year of transfer/ sale x cost of acquisition ) / CII for the year in which the asset was purchased/ Base Year held ( whichever is later) }

Indexed Cost of Improvement = { (Cost of Inflation Index (CII) for the year of transfer/ sale x cost of Improvement) / CII for the year in which Improvement to the asset took place }

Practical Examples
Case 1: Rajiv purchased a flat in FY 2001-02 for Rs. 10,00,000. He sells the flat in FY 2017-18. What will be the indexed cost of acquisition? In this case, CII for the year 2001-02 and 2017-18 is 100 and 272 respectively as per the tables provided above. Hence, the Indexed Cost of Acquisition = 10,00,000 x 272/100 = Rs. 27,20,000

Case 2: Shivaprasad purchased a capital asset in FY 1995-1996 for Rs. 2,00,000. FMV of the capital asset on 1st April 2001 was Rs. 3,20,000. She sells the asset in FY 2016-17. What is the indexed cost of acquisition? Here, the asset is purchased before the base year. Hence the cost of acquisition = Higher of actual cost or FMV on 1st April 2001. i.e. Cost of Acquisition = Rs. 3,20,000. CII for the year 2001-02 and 2016-17 is 100 and 264 respectively as per the tables provided above. Indexed cost of acquisition = 3,20,000 x 264/100 = Rs. 8,44,800.

For a detailed explanation on the above subject, please refer:

https://www.incometaxindia.gov.in/Tutorials/15-%20LTCG.pdf

Disclaimer:
The details provided above are for the purpose of educating and understanding only. You are requested to kindly refer to a qualified Charted Accountant or the relevant Department for the exact information on the subject.

New Cost Inflation Index (CII) From FY 2001-02 To FY 2018-19
Current CII:
FINANCIAL YEAR (FY)	ASSESSMENT YEAR (AY)	COST INFLATION INDEX
2001-02	2002-03	100
2002-03	2003-04	105
2003-04	2004-05	109
2004-05	2005-06	113
2005-06	2006-07	117
2006-07	2007-08	122
2007-08	2008-09	129
2008-09	2009-10	137
2009-10	2010-11	148
2010-11	2011-12	167
2011-12	2012-13	184
2012-13	2013-14	200
2013-14	2014-15	220
2014-15	2015-16	240
2015-16	2016-17	254
2016-17	2017-18	264
2017-18	2018-19	272
2018-19	2019-20	280
2018-19	2019-20	280
Old CII (From Base Year - 1981-82):
FINANCIAL YEAR (FY)	COST INFLATION INDEX	FINANCIAL YEAR (FY)	COST INFLATION INDEX
1981-82	100	1999-00	389
1982-83	109	1999-00	406
1983-84	116	2001-02	426
1984-85	125	2002-03	447
1985-86	133	2003-04	463
1986-87	140	2004-05	480
1987-88	150	2005-06	497
1988-89	161	2006-07	519
1989-90	172	2007-08	551
1990-91	182	2008-09	582
1991-92	199	2009-10	632
1992-93	223	2010-11	711
1993-94	244	2011-12	785
1994-95	259	2012-13	852
1995-96	281	2013-14	939
1996-97	305	2014-15	1024
1997-98	331	2015-16	1081
1998-99	351	2016-17	1125

Fixed Deposits are one of the oldest and most common methods of investing. When it comes to assured returns, choosing the right type of savings scheme makes all the difference. Fixed Deposits let you make the most of value-added benefits as you create wealth at low risk. Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits.

Types of Companies offering Fixed Deposits
»  Financial Institutions
»  Non-Banking Finance Companies (NBFCs).
»  Manufacturing Companies
»  Housing Finance Companies
»  Government Bodies /Companies

Features and Benefits of Fixed Deposits:
a)Company Fixed Deposits offer comparatively higher returns than that of banks.
b) Choose the best tenure for you from a wide range as per your convenience. You can choose how frequently you want to receive your interest payments:
       » Maturity
       » Yearly
       » Half-yearly
       » Quarterly
       » Monthly

c) Company Fixed Deposits are non transferable that means there is no fear of FD receipt being stolen. In case it falls into wrong hands, it cannot be misused.
d) Premature encashment of deposit is available any time subject to payment of prescribed penalty.
e) Diversify Risk- The deposits should be spread over a large number of companies engaged in different industries. This way, you'll be able to diversify your risk among various industries/companies.
f) Wide Choices: - Many companies operating in the Company Deposit market. This will help you decide whether to renew or reshuffle the deposit.
g) Attractive rates as applicable from time to time.

Bonds:
An investment avenue in which an investor loans money to an entity (government or corporate) that borrows funds for a defined period of time at a fixed interest rate. Bond market has not attracted retail investors to it. But in recent times, lackluster equity markets and low rate of interest have attracted retail investors towards bonds. Those issued by the Government/ Government bodies are called Government Bonds; while those issued by the Corporate bodies are called Corporate Bonds.

Advantage: the rate of interest is high.
Disadvantage: Interest earned is taxable.
Non-Convertible Debentures ( NCDs):
Non-convertible debentures (NCD) are fixed-income instruments, usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer relatively higher interest rates when compared to convertible debentures. Features of NCDs
a. Taxation
NCDs carry tax implications depending on the tax bracket the investor falls under. If NCDs are sold within a year or lesser STCG will be applicable as per the income tax slab rate. If the NCDs are sold after a year or more or before the maturity date, LTCG will be applicable at 20% with indexation.

b. Credit rating
Companies are ranked by credit rating agencies such as CRISIL, CARE etc. To determine the potential of a company, its rating plays a major role. Higher credit rating means that the company has the ability to fulfill credit obligations. However, low credit rating means that the company has high credit risks involved. If any issuing company fails to make payments then the rating agencies give them lesser ranking.

c. Interest
NCDs offer high interests. Interest payouts are either monthly, quarterly, half-yearly or annually. NCDs do offer a cumulative payout option as well.

Difference between Corporate FDs and NCDs

Corporate Fixed Deposits	NCDs
Corporate FDs are highly unsafe, whereas, bank FDs are insured up to Rs.1 lakh.	NCDs is either secured or unsecured depending on the principal amount and interest rate issued by the company offering debentures.
FDs can be withdrawn before maturity with a small penalty applicable on an early withdrawal. However, premature withdrawals do not apply to all types of FDs.	NCDs cannot be withdrawn before maturity. Since NCDs are listed on the stock market they can be sold in the secondary market.
Bank FDs attract TDS if gains are beyond Rs.10,000.	Tax implications do apply on NCDs. Capital gains need to be paid on the interest earned. However, NCDs held in Demat form are exempted from TDS.
Deposit Insurance and Credit Guarantee Corporation insures bank FDs (up to Rs.1 lakh).	NCDs are not insured but are secured against the company assets
While you cannot sell FD in the market. FDs enjoy more liquidity than NCDs by way of pre-mature withdrawal.	You can trade your NCD, but not withdraw it prematurely
No interest risk	The interest varies as per market

We help clients in availing Demat & Trading accounts - for trading and investing in stocks. An introduction about Demat ac's & PMS to be added - details could be availed from the net for now.
We also assist clients for investing in Alternate Investment Funds (AIF) like REIT (Real Estate Investment Trust), Private Equity (PE), etc.

We help clients in availing Loan against securities(LAS) like Stocks, Bonds, Mutual Funds. An introduction about LAS to be added - details could be availed from the net for now.

We also assist clients in - availing Education Loans for Overseas Education; Lease Rental Discounting, Valuation of Business, Margin Funding, Corporate Funding, etc

We assist in availing Education Loans -preferably for overseas Education from various loan providers.

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