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Cost Inflation Index

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.