01 July 2017

Money inflation simplified

Money inflation is very important fact while you calculate your return on investment or long term capital gain. The amount of goods and service that a 100 rupees currency note can buy, should be reduced year after year. This reduction in purchasing power of money is known as money inflation. Hence, if you sold a gold coin for Rs. 1 lakh today which was purchased 10 years ago for Rs. 20 Thousand. then your gain from this sale will be much lesser than Rs. 80 Thousand. Because 20 thousand rupees cannot buy the same gold coin today, So, at first you have to determine the current value of  the 20 thousand rupees of 10 years ago. To do this you need to know the cost inflation index for both of the year.

For this example, you purchased the gold coin for Rs. 20,000 on FY: 2007-08, when the inflation index was 551 and you sold the same for Rs. 1,00,000 on FY: 2017-18, when the inflation index was 1159.
Hence, today the Rs. 20,000 of FY: 2007-08 should be valued at Rs. 42068.97 (20,000*1159/551), that is known as indexed cost of acquisition, and the profit will be Rs. 57931.03 (1,00,000 - 42,068.97)

The Cost Inflation Index Chart till FY: 2017-18 is given below: 
(You can also try our "Money inflation calculator")

 Financial Year
 Index
 Financial Year
 Index
 1981-82
100 
2000-01
406
 1982-83
109
2001-02 
426
 1983-84
116
2002-03 
447 
 1984-85
125
2003-04
463
 1985-86
133 
2004-05 
480 
 1986-87
140 
2005-06
497 
 1987-88
150 
2006-07
519 
 1988-89
161 
2007-08
551 
 1989-90
172 
2008-09 
582 
 1990-91
182 
2009-10
632 
 1991-92
199 
2010-11
711 
 1992-93
223 
2011-12 
758 
 1993-94
244 
2012-13 
852 
 1994-95
259 
2013-14
939 
 1995-96
281 
2014-15 
1024 
 1996-97
305 
2015-16 
1081 
 1997-98
331 
2016-17 
1125 
 1998-99
351 
2017-18
1159
 1999-00
389
2018-19
To be announced!