Tax department released new cost inflation index

A CBDT order said that the provisional CII for FY24 is 348, while for FY23 it is 331, thereby overestimating the computation of capital gains in line with general inflation.

Inflation indexing is allowed for long-term capital assets such as property and shares. These assets are recorded in the taxpayers’ books at historical cost or cost of acquisition. The difference between the purchase price and the selling price may widen due to the effect of inflation. Inflation indexation provides relief to taxpayers from the impact of price rise.

“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 , then the assets can be classified as long-term assets, and the assessee can claim the benefit of inflation increase through inflation indexation,” explained Om Rajpurohit, joint partner (corporate and international tax) AMRG & Associates. , with an accounting firm. The CII is linked to consumer price index based inflation. For now, the inflation index has been notified on a provisional basis, and it can be said to be rising faster than last year, said Amit Maheshwari, tax partner at tax and consulting firm AKM Global.

“The reason for notifying him provisionally may be on account of payment of advance tax installment which is due on or before June 15. Maheshwari said taxpayers would have a tentative idea on how to calculate advance tax on capital gains, assuming the final index is notified sometime after June 15.

Overall, CII will be beneficial to taxpayers as those held for longer periods are booked at cost of purchase irrespective of rising inflation. Maheshwari said, “It is very important to align the said purchase cost with the new Cost Inflation Index provisionally notified as 348, due to which capital gains tax can be calculated properly and fairly.”