Cost Inflation Index:
The income tax department has notified the Cost Inflation Index for the current fiscal beginning April 2024.
- Cost Inflation Index is used to adjust the purchase price of assets on the basis of inflation.
- It is notified under the Income-tax Act, 1961 every year.
- It helps an individual to ascertain the inflation-adjusted current price of an asset.
- It also helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.
- Capital gain refers to the profit acquired from the sale/transfer of any capital assets, including land, property, stocks, shares, trademarks, patents, etc.
- 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’.
- It helps taxpayers offset the impact of inflation as the difference between the purchase and sale price could be substantial due to rising prices.
- The application of the Cost Inflation Index for capital gain adjusts the purchase price of assets based on their sale price, resulting in smaller earnings and a lower tax amount.
- From FY 2023-24, the indexation benefit on long-term capital gains from non-equity mutual fund schemes has been removed.
- A taxpayer will continue to use the CII number to calculate long-term capital gains from house property, land, and building in the event of a sale.
