What is Cost Inflation Index (CII) for FY 2024-25, FY 2023-24 for income tax purposes? This CII number helps to calculate inflation adjusted cost or inflation indexed cost on specified capital costs. Read on to know the CII number from 2001-02 for different financial years
Income tax is payable on long-term capital gains. However, indexation benefit, which is available for capital gains on certain capital assets, can reduce the tax outgo. Indexation benefit allows a taxpayer to adjust the purchase price of an asset according to inflation before selling it. This helps the seller pay lower tax on long-term capital gains.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} For instance, let us say you had purchased an asset about 10 years ago for Rs 100; its inflation-adjusted price now is Rs 160. You sell the asset for Rs 200. To calculate taxable capital gains, the inflation-adjusted price of Rs 160 will be deducted from the sale price of Rs 200. This will make taxable capital gains Rs 40 (Rs 200- Rs 160). Had the inflation adjustment not been done, the taxable capital gains would have been Rs 100 (Rs 200-Rs 100). This means you would have to pay higher tax if inflation adjustment is not done.
To calculate indexation benefits, the income tax department notifies a Cost Inflation Index (CII) for every financial year. This number is used to calculate the inflation-adjusted cost of a long-term capital asset. To calculate the taxable capital gain, this inflation-adjusted purchase cost is subtracted from the sale price of the asset. However, indexation benefit is allowed only for certain assets.
CII numbers for financial years: FY 2001-02 onwards
Here are the CII numbers notified by the income tax department:Financial year
Cost Inflation Index
2024-25
363
2023-24
348
2022-23
331
2021-22
317
2020-21
301
2019-20
289
2018-19
280
2017-18
272
2016-17
264
2015-16
254
2014-15
240
2013-14
220
2012-13
200
2011-12
184
2010-11
167
2009-10
148
2008-09
137
2007-08
129
2006-07
122
2005-06
117
2004-05
113
2003-04
109
2002-03
105
2001-02
100
Source: Income tax notifications
For the current financial year 2024-25 (AY 2025-26), the Central Board of Direct Taxes (CBDT) has notified the CII as 363. The notification was issued on May 24, 2024. The CII number for FY 2023-24 (AY 2024-25) was 348.
So, 348 will be the CII used to calculate the inflation-adjusted purchase price of specified assets sold between April 1, 2023, and March 31, 2024, while filing income tax returns; and 363 will be the CII used next year to calculate the inflation-adjusted purchase price of assets sold in current FY 2024-25 (AY 2025-26) - between April 1, 2024, and March 31, 2025.
Which assets can avail indexation benefit?
An asset when sold accrues either a capital gain or loss. Such gain or loss can be categorised as short term or long term, depending on the nature of the asset and its holding period, as specified under the Income Tax Act, 1961.
However, indexation benefit is not available for capital gain or loss on all capital assets. It is available only on transactions in certain long-term capital assets.
Sudhir Kaushik, CEO of Taxspanner.com, says, "Not all long-term capital assets are eligible for indexation benefits. The long-term capital assets that are eligible for indexation benefits are land, building and unlisted shares. Other specified assets like jewellery, paintings, sculptures, and archaeological collections are also eligible for indexation benefit. Further, debt mutual funds, bonds and debentures bought on or before March 31, 2023, are also eligible for indexation benefit. Long-term gains on equity shares and equity-oriented mutual funds are not eligible for indexation benefits."
Formula to calculate the inflation-indexed purchase price
There is a formula to calculate the inflation-indexed purchase price using the CII number. The formula is:Inflation adjusted price = (CII of the year of sale / CII of the year of purchase) * Actual purchase price of the asset
Here is an example to understand how to calculate inflation-adjusted price. Suppose an individual bought a house in FY 2002-03 for Rs 25 lakh. The inflation-adjusted price of that house in FY 2023-24 will be (348/105) X Rs 25 lakh = Rs 82.85 lakh.
If the house is sold in FY 2023-24 (AY 2024-25) i.e., between April 1, 2023, and March 31, 2024, then this inflation adjusted price of Rs 82.85 lakh will be subtracted from the sale price to arrive at the long-term capital gain or long-term capital loss.
Under income tax laws, whether a capital gain is long-term or short-term depends on how long the asset is in the possession of the seller. The holding period criteria vary across asset classes.
The CII number is used to calculate the long-term capital gains when a house, land or building is sold by an individual. Till FY 2022-23 (ended March 31, 2023), the CII number was used to calculate the long-term capital gains from non-equity mutual fund schemes. These include debt mutual fund schemes, international equity mutual fund schemes and gold mutual fund schemes, among others. However, from FY 2023-24, the indexation benefit on long-term capital gains from non-equity mutual fund schemes has been removed.
What if an asset was purchased before FY 2001-02?
The CII number mentioned in the table above starts from financial year 2001-02. This is because the government shifted the base year for CII from 1981 to 2001. The shift was announced in Budget 2017. To calculate the indexed cost of an asset purchased before 2001, its fair market value in 2001 is to be taken into account.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
