/ INCOME TAX

Cost Inflation Index for computation of capital gains

UPDATED COST INFLATION INDEX.

Cost Inflation Index

The Cost Inflation Index (CII) is a tool used in India to adjust the purchase price of assets for inflation, primarily for the purpose of calculating capital gains tax. The index is published annually by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance.  The CII plays a crucial role in income tax calculations, especially for long-term capital gains, by allowing taxpayers to inflate the purchase price of an asset, thus reducing the taxable gains and consequently the tax liability. For example, if you purchased a property in a previous year and are selling it now, the CII helps adjust its cost to reflect the current value considering inflation, which can significantly lower your capital gains tax​

The CII is used to adjust the purchase price of assets for inflation, ensuring fair taxation on long-term capital gains. Here’s a detailed explanation and example of how to use the CII:

Calculation Example

If you acquired a property in the financial year 2005-06 for ₹20,00,000 and sold it in the financial year 2023-24, you can calculate the indexed cost of acquisition as follows:

  1. Determine the CII values:
    • CII for FY 2005-06: 117
    • CII for FY 2023-24: 348
  2. Calculate the Indexed Cost of Acquisition:
    Indexed Cost of Acquisition=(CII for FY 2023-24CII for FY 2005-06)×Cost of Acquisition
    Indexed Cost of Acquisition=(348117)×20,00,000=59,48,717.94

Thus, the indexed cost of acquisition of the property would be approximately ₹59,48,717. This amount is used to determine the capital gains for tax purposes.

Purpose of CII

The CII helps in mitigating the impact of inflation on capital gains, ensuring that taxpayers are taxed on real gains rather than nominal gains. This adjustment lowers the taxable gains and reduces the tax liability for the taxpayer. Using the CII helps in reducing the tax burden on long-term capital gains by accounting for the inflationary increase in asset prices. This makes the taxation system more equitable as it taxes the real gain rather than the nominal gain.

Example Calculation

Here’s a practical illustration using the figures provided:

  • Original Cost of Acquisition: ₹20,00,000
  • CII for FY 2005-06: 117
  • CII for FY 2023-24: 348

Using the formula, the indexed cost of acquisition is calculated to be approximately ₹59,48,717.94.

UPDATED COST INFLATION INDEX

cost Index

22                                               2022-23                                                                348

23                                                2023-24                                                                363

Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, Government of India notified the Cost Inflation Index for Financial Year  2023-24 is 331 &  2023-24 is 348.

Cost Inflation Index for F.Y.24-25 is 363

The Cost Inflation Index (CII) for the financial year 2023-24 is 348. The Cost Inflation Index (CII) for the financial year 2024-25 has been notified as 363 by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance. This index is used to adjust the purchase price of assets for inflation when calculating long-term capital gains tax in India. It helps in mitigating the impact of inflation on taxable gains, thereby ensuring fair taxation

Cost Inflation Index for Financial Year 20.24-25 s 363

What is take the Base Year in CII Index?

In India uses a CII to account for inflation when calculating Income tax capital gains for taxation objective. This Cost Inflation Index is based on a specific “base year,” which was most current changed from 1981 to 2001. This means that the Cost Inflation Index for the FY 2001-02 is considered 100, & Cost Inflation Index  for all other years is calculated relative to this starting point.

Cost Inflation Index specified for the purpose of Old year computation of capital gains are as follows:- 

FINANCIAL YEAR COST INFLATION INDEX
2015-2016 1081
2014-2015 1024
2013-2014 939
2012-2013 852
2011-2012 785
2010-2011 711
2009-2010 632
2008-2009 582
2007-2008 551
2006-2007 519
2005-2006 497
2004-2005 480
2003-2004 463
2002-2003 447
2001-2002 426
2000-2001 406
1999-2000 389
1998-1999 351
1997-1998 331
1996-1997 305
1995-1996 281
1994-1995 259
1993-1994 244
1992-1993 223
1991-1992 199
1990-1991 182
1989-1990 172
1988-1989 161
1987-1988 150
1986-1987 140
1985-1986 133
1984-1985 125
1983-1984 116
1982-1983 109
1981-1982 100

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact us : singh@caindelhiindia.com or call at 9555 555 480

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