Cost Inflation Index (CII) for FY 2023-24: CBDT Notification

The CBDT has announced that the ‘Cost Inflation Index (CII)’ in respect of Financial Year 2023-24 (Assessment Year 2024-25) shall be 348, which has been increased from 331 announced earlier for the last financial year 2022-23. The CII is used for calculating ‘long term capital gains (LTCG)’ under Income Tax. CBDT announces fresh CII each year using the base year 2001-02 as equal to 100.

Notably, the Finance Act 2017 has modified the provisions relating to the ‘cost inflation index’ or the indexation for calculating long-term capital gains (LTCG). Past provisions have been amended by replacing the old base financial year 1981-82 to new base financial year 2001-02. The income tax assessees have the option of calculating LTCG using Fair Market Value (FMV)/Indexed Cost of acquisition in respect of assets purchased prior to April 1, 2001.CBDT Notifies Cost Inflation Index: CII Chart from base year 2001-02 onwards (up to FY 2023-24/ AY 2024-25)

When it comes to calculating the amount of income tax that must be paid on long-term capital gains, the cost inflation index is an extremely helpful tool. The fact that it takes into account the effects of inflation on the initial purchase price of the asset is the primary advantage of utilising the cost inflation index. This is especially the case if the asset was purchased a very long time ago, and the current market value of the asset is significantly greater than the price at which it was originally purchased. If there was no cost inflation index, taxpayers would be subject to an unfair level of taxation on their capital gains.

Long-term capital gains are defined as any profits made from the sale of an asset that has been owned for a period of time that is greater than three years normally. When calculating the amount of tax that must be paid on a long-term capital gain, the cost of the asset’s initial purchase as well as any subsequent improvements must be adjusted for inflation. The utilisation of the cost inflation index serves to accomplish this goal. Cost inflation index is also utilised by the government for the purpose of calculating periodic inflation. By utilising the cost inflation index, taxpayers have the ability to ensure that they are paying the appropriate amount of tax on their capital gains.

Cost Inflation Index (CII) Table OR Capital Gain Indexation Chart (from Base Year 2001-02 to FY 2023-24/ AY 2024-25)

The Capital Gains/Cost Inflation Indexation Chart or Table, as notified/amended by CBDT from time to time, is based on the new base year 2001-02 and covers all financial/assessment years up until 2023-24/2024-25, respectively. Here is a summary of the CBDT-notified Cost Inflation Index (CII) for various years, i.e. Indexation Chart/ Table, Capital Gains Index/ Chart/ Table, Cost Inflation Index/ Chart/ Table:

SI. No.Financial Year (FY)Income Tax NotificationCost Inflation Index (CII)
232023-2421/2023 &

New Cost Inflation Index (CII) for FY 2023-24/ AY 2024-25 notified by CBDT

CBDT Income Tax Notification 21/2023 dated 10/04/2023: New Cost Inflation Index (CII) for FY 2023-24/ AY 2024-25 at 348

CBDT Income Tax Notification 39/2023 dated 12/06/2023: New Cost Inflation Index (CII) for FY 2023-24/ AY 2024-25 at 348

Relevance of Cost Inflation Index (CII)/ Capital Gain Index?

Notably, the CII applies only to long-term capital gains, i.e., gains from the sale of long-term capital assets. To calculate taxable capital gains on short-term capital assets/gains, deduct the acquisition/improvement cost from the sale price. In the case of the transfer of a long-term capital asset, however, capital gains are determined by subtracting the indexed cost of acquisition/improvement from the sale consideration.

The indexed cost of acquisition/improvement is crucial in calculating long-term capital gains because it offers a more precise representation of the asset’s cost. The CII offers a more precise estimation of an asset’s cost by taking into account how inflation affects the purchasing power of money. The Central Government therefore updates the CII annually in line with the rate of inflation. The CII is an important factor to take into account when determining the amount of tax payable on the sale of a long-term capital asset. By taking the effects of inflation into account, the CII provides a more precise measurement of the cost of an asset, leading to a more precise calculation of capital gains.

The term ‘Cost Inflation Index/Capital Gain Index’ refers to the Central Government’s notification of the average increase in the ‘consumer price index’ during the preceding year. In contrast, the ‘indexed cost of acquisition’ is computed by multiplying the ‘cost of acquisition’ by the change in the ‘cost inflation index’ since the year of acquisition or April 1, 2001, whichever is later.

This formula is used to calculate long-term capital gains resulting from the sale of any long-term capital asset. Simply put, the purchase price is adjusted for inflation prior to taxing any gains from the total sale value. The difference between this indexed cost and the asset’s sale price is taxed as long-term capital gain.

Accordingly, the ‘Cost Inflation Index/ Capital Gain Index‘ for FY 2023-24 (new CII) is useful for calculating the ‘long term capital gains (LTCG)’ arising from the transfer of a long-term capital asset during FY 2023-24, i.e. ‘sale consideration’ minus ‘indexed cost of acquisition/improvement’

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