Finance Ministry has notified the final Cost Inflation Index (CII) for FY24 (Assessment Year 2024-25) at 348. The provisional index, as notified in April, was also 348.
As the index is higher by more than 5 per cent as compared to FY22, long-term capital gain liability on the sale or transfer of any capital asset, such as land, property, trademarks, patents, etc., is expected to be lower during current fiscal.
Property purchased in 2015-16, sold in 2023-24
Calculation of Indexed Cost of Acquisition
| Actual cost of acquisition | ₹50,00,000 |
| Cost Inflation In 2015-16 | 254 |
| Cost Inflation In 2023-24 | 348 |
| Indexed cost of acquisition | ₹68,50,394 |
Tax Calculation
| Particulars | Actual Cost | Indexed Cost |
|---|---|---|
| Full consideration | ₹75,00,000 | ₹75,00,000 |
| Less: Cost of acquisitions | ₹50,00,000 | ₹68,50,394 |
| LTCG | ₹25,00,000 | ₹6,49,606 |
| Tax@20% | ₹5,00,000 | ₹1,29,921 |
| Cess@4% | ₹20,000 | ₹5,197 |
| Total Tax | ₹5,20,000 | ₹1,35,118 |
According to the Central Board of Direct Taxes (CBDT), “This notification shall come into force with effect from the 1st day of April 2024 and shall, accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.” The CII number assists in determining the long-term capital gains on which an assessee is required to pay taxes when she/he files income tax returns (ITR) next year.
Also read: Retail inflation dips to over 2-year low of 4.25% in May
CII is a way to calculate inflation, that is, an estimated increase in the price of a good or service over the years. Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it. With the help of indexation, one will be able to lower her/his long-term capital gains, which brings down taxable income. The rate of inflation to be used for indexation can be obtained from the Income Tax Department’s CII.
The Central government notifies the index. Usually, for the calculation of CII, gains on long-term capital are taken into account. To benefit the taxpayers, the CII is applied to the long-term capital assets, due to which purchase cost increases, resulting in lesser profits and lesser taxes.
The indexation was in the news recently as Finance Act 2023 removed this for debt mutual funds. It may be recalled that from April 1 and onwards gain for funds will now be taxed at the investor’s tax slab rates, rather than the previous 20 per cent with indexation benefit and 10 per cent without that as a result, if the investor is subject to the highest tax bracket, this rate would be 35.8 per cent (including surcharge and cess).