Income Tax department notifies cost inflation index for current fiscal

The income tax department has notified the Cost Inflation Index for the current fiscal beginning April 2024, for calculating long-term capital gains arising from sale of immovable property, securities and jewellery.

The Cost Inflation Index (CII) is used by taxpayers to compute gains arising out of sale of capital assets after adjusting inflation.

The CII for financial year 2024-25, relevant to assessment year 2025-26, stood at 363, as per a notification of the Central Board of Direct Taxes (CBDT).

The CII number for last fiscal was 348 and for 2022-23 financial year it was 331.

Moore Singhi Executive Director Rajat Mohan said the CII reflects the inflation in the economy, which causes the prices of goods and services to increase over time. For the financial year 2023-24, the CII was set at 348.

The index for the following financial year, 2024-25, has been updated to 363, marking an increase of 15 points, which corresponds to an annual inflation rate of approximately 4.3 per cent.

"This is consistent with the retail inflation rate of 4.83 per cent recorded in April 2024. Taxpayers usually prefer a higher CII as it allows them to claim larger tax rebates," Mohan said.

AKM Global Partner-Tax Sandeep Sehgal said the index is useful to adjust the capital gains for inflation, so that the taxpayers are taxed on real appreciation of the assets and not the gains due to inflation.
"Taxpayers can use this to calculate gains for long-term capital assets sold during FY 24-25 and reduce the tax liability accordingly," Sehgal said.

CII is notified under the Income-tax Act, 1961 every year. It is popularly used to calculate "indexed cost of acquisition", while calculating capital gains at the time of sale of any capital asset.

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'.

Since prices of goods increase over time resulting in a fall in the purchasing power, the CII is used to arrive at the inflation adjusted purchasing price of assets so as to compute taxable long-term capital gains (LTCG).