Income tax

cost inflation index: the income tax department notifies the cost inflation index for the current fiscal year

The Income Tax Department released the cost inflation index for the current fiscal year to calculate long-term capital gains resulting from the sale of real estate, securities and jewelry. The Cost Inflation Index (CII) is used by a taxpayer to calculate gains from the sale of fixed assets after adjusting for inflation.

The cost inflation index for FY 2022-23 relevant for FY 2023-24 is 331.

Rajat Mohan, senior partner at AMRG & Associates, said the ITC will help taxpayers calculate long-term capital gains tax, enabling them to remit withholding tax on time.

“Over the past two years, the inflation index has been rising faster, which depicts the rising inflation in the country,” Mohan added.

AKM’s global head of tax markets, Yeeshu Sehgal, said the ITC would be beneficial for taxpayers because assets, which are held long-term, are recorded at purchase cost despite rising inflation.

“It is very important to adjust the said purchase cost with the new notified cost inflation index at 331 through which the capital gains tax can be calculated reasonably and fairly,” Sehgal said.

The CII or Cost Inflation Index is notified annually under the Income Tax Act 1961. It is commonly used to calculate the “indexed acquisition cost” when calculating capital gains on the sale of any fixed asset.

Normally, a property must be kept for more than 36 months (24 months for real estate and unlisted shares, 12 months for listed securities) to qualify as long-term capital gain.

Since the prices of goods increase over time resulting in a decline in purchasing power, the ITC is used to arrive at the purchase price of assets adjusted for inflation to calculate long-term capital gains taxable (LTCG).