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CBDT Notifies Cost Inflation Index for FY25 At 363: What Is This?

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 the sale of immovable property, securities and jewellery.
The cost inflation index (CII) is used by taxpayer to compute gains arising out of sale of capital assets after adjusting inflation. The Central Board of Direct Taxes (CBDT) on May 25 notified the cost inflation index for the current financial year (2024-25).
“The Cost Inflation Index for FY 2024-25 relevant to AY 2025-26 & subsequent years is 363," according to the notification of the Central Board of Direct Taxes notifying the latest CII number.
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).
What is the Cost Inflation Index?
Suppose you bought a house 10 years ago. Today, you might be able to sell it for a much higher price. But, has the house itself really become that much more valuable? Not necessarily. Inflation, the general rise in prices over time, means your money buys less each year.
The Cost Inflation Index (CII) is a tool that helps account for this. It’s a number published by the government that reflects the estimated yearly increase in prices. This index is particularly useful when calculating capital gains taxes on things like property or stocks. By factoring in inflation, the CII helps adjust the original purchase price of an asset to better reflect its real value today. This can result in a lower capital gain and potentially lower taxes you have to pay.
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