The Income Tax Department has announced the Cost Inflation Index (CII) for the current fiscal year starting from April 2024. This index is used by taxpayers to calculate long-term capital gains from the sale of immovable property, securities, and jewelry, by adjusting for inflation. For the financial year 2024-25 (relevant to the assessment year 2025-26), the CII is set at 363, as per the notification from the Central Board of Direct Taxes (CBDT). This is an increase from the previous fiscal year’s CII of 348 and the CII of 331 for the 2022-23 financial year.
Rajat Mohan, Executive Director at Moore Singhi, explained that the CII reflects the inflation in the economy, indicating an increase in the prices of goods and services over time. The 363 CII for the 2024-25 fiscal year represents a 15-point increase, equivalent to an annual inflation rate of around 4.3 percent. Mohan also noted that taxpayers generally prefer a higher CII as it allows them to claim larger tax rebates.
Sandeep Sehgal, Partner-Tax at AKM Global, emphasized the usefulness of the index in adjusting capital gains for inflation, ensuring that taxpayers are taxed on the real appreciation of assets rather than gains due to inflation. Taxpayers can use the CII to calculate gains for long-term capital assets sold during the 2024-25 fiscal year and reduce their tax liability accordingly.
It’s worth noting that the CII is notified under the Income-tax Act, 1961 annually and is commonly used to calculate the “indexed cost of acquisition” when determining capital gains at the time of selling any capital asset. Typically, an asset must be held for more than 36 months (24 months for immovable property and unlisted shares, and 12 months for listed securities) to qualify for ‘long-term capital gains’.
Since the prices of goods increase over time, resulting in a decrease in purchasing power, the CII is used to determine the inflation-adjusted purchasing price of assets for calculating taxable long-term capital gains (LTCG).