Cost Inflation Index (CII)

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Overview:

Recently, The Income Tax Department has notified the Cost Inflation Index for the current fiscal beginning April 2023.

Why in News?

  • The Cost Inflation Index number for the current fiscal year 2023-24 is 348 as per a notification of the Central Board of Direct Taxes (CBDT). 
  • Cost Inflation Index is notified under the Income-tax Act, 1961 every year since 2001 in the month of June.
  • But this year's CII is notified 3 months earlier as compared to last fiscal year. 
  • Taxpayers will need this CII number at the time of filing income tax return (ITR) next year i.e., AY 2024-25. 

What is Cost Inflation Index?

  • The Cost Inflation Index (CII) is used to measure and index for inflation to estimate the tax liability in case of sale of long-term capital assets such as property, shares and gold.
  • It helps taxpayers offset the impact of inflation as the difference between the purchase and sale price could be substantial due to rising prices.
  • Normally, an asset is required to be retained for more than 36 months (24 months for immovable property and unlisted shares, 12 months for listed securities) to qualify as 'long-term capital gains'.
  • Till FY 2022-23 (ended on March 31, 2023), the CII number was used to calculate the long-term capital gains from non-equity mutual fund schemes (debt mutual fund schemes, international equity mutual fund schemes, gold mutual fund schemes etc.)
  • But from FY 2023-24, the indexation benefit on long-term capital gains from non-equity mutual fund schemes has been removed. 

How it is calculated?   

  • To calculate the inflation-adjusted price, the CII is used in the following manner-
  • Inflation-adjusted price = (CII of the sale year/CII of the purchase year) * Actual price of the asset.

 


Q1) What is the Central Board of Direct Taxes (CBDT)?

The CBDT is a part of Department of Revenue in the Ministry of Finance. On one hand, CBDT provides essential inputs for policy and planning of direct taxes in India,at the same time it is also responsible for administration of direct tax laws through the Income Tax Department.

Source: The Cost Inflation Index number for FY 2023-24 (AY 2024-25) used for LTCG calculation notified by CBDT