Tax dept issues new cost inflation index

A CBDT order said the provisional CII for FY24 is 348, as against 331 for FY23, making computation of capital gain more in tune with general inflation.

Inflation indexing is allowed for long-term capital assets like property and shares. These assets are reported in the books of taxpayers at historical cost or cost of acquisition. Due to the effect of inflation, the gap between purchase price and sale price could get inflated. Inflation indexing offers relief to taxpayers from the effect of price rise.

“The cost inflation index serves as the foundation for calculating long-term capital gains on stocks and real estate. CII is calculated using the inflation rate. If the holding period of certain assets exceeds a certain period, the assets can be classified as long-term assets, and the assessee can claim the benefit of inflation rises via the inflation index,” explained Om Rajpurohit, joint partner (corporate and international tax) with AMRG & Associates, an accounting firm. CII is linked to consumer price index based inflation. For now, the inflation index has been notified on a provisional basis, and it may be said that it is rising faster compared to last year, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.

“The reason for notifying the same provisionally may be due to the payment of advance tax instalment which is due on or before 15 June. Taxpayers will have a tentative idea by then to calculate the advance tax on the capital gains assuming the final index is notified somewhere after 15 June,” said Maheshwari.

Overall, the CII will be beneficial to taxpayers because that are held for long term are recorded at purchase cost despite increasing inflation. “It is very important to adjust the said purchase cost with the new cost inflation index notified provisionally as 348 due to which the capital gains tax can be reasonably and fairly calculated,” said Maheshwari.