The CBDT has announced that the ‘Cost Inflation Index (CII)’ in respect of Financial Year 2023-24 (Assessment Year 2024-25) shall be 348, which has been increased from 331 announced earlier for the last financial year 2022-23. The CII is used for calculating ‘long term capital gains (LTCG)’ under Income Tax. CBDT announces fresh CII each year using the base year 2001-02 as equal to 100.
Notably, the Finance Act 2017 has modified the provisions relating to the ‘cost inflation index’ or the indexation for calculating long-term capital gains (LTCG). Past provisions have been amended by replacing the old base financial year 1981-82 to new base financial year 2001-02. The income tax assessees have the option of calculating LTCG using Fair Market Value (FMV)/Indexed Cost of acquisition in respect of assets purchased prior to April 1, 2001.
When it comes to calculating the amount of income tax that must be paid on long-term capital gains, the cost inflation index is an extremely helpful tool. The fact that it takes into account the effects of inflation on the initial purchase price of the asset is the primary advantage of utilising the cost inflation index. This is especially the case if the asset was purchased a very long time ago, and the current market value of the asset is significantly greater than the price at which it was originally purchased. If there was no cost inflation index, taxpayers would be subject to an unfair level of taxation on their capital gains.
Long-term capital gains are defined as any profits made from the sale of an asset that has been owned for a period of time that is greater than three years normally. When calculating the amount of tax that must be paid on a long-term capital gain, the cost of the asset’s initial purchase as well as any subsequent improvements must be adjusted for inflation. The utilisation of the cost inflation index serves to accomplish this goal. Cost inflation index is also utilised by the government for the purpose of calculating periodic inflation. By utilising the cost inflation index, taxpayers have the ability to ensure that they are paying the appropriate amount of tax on their capital gains.
Cost Inflation Index (CII) Table OR Capital Gain Indexation Chart (from Base Year 2001-02 to FY 2023-24/ AY 2024-25)
The Capital Gains/Cost Inflation Indexation Chart or Table, as notified/amended by CBDT from time to time, is based on the new base year 2001-02 and covers all financial/assessment years up until 2023-24/2024-25, respectively. Here is a summary of the CBDT-notified Cost Inflation Index (CII) for various years, i.e. Indexation Chart/ Table, Capital Gains Index/ Chart/ Table, Cost Inflation Index/ Chart/ Table:
| SI. No. | Financial Year (FY) | Income Tax Notification | Cost Inflation Index (CII) |
| 1 | 2001-02 | 44/2017 | 100 |
| 2 | 2002-03 | 105 | |
| 3 | 2003-04 | 109 | |
| 4 | 2004-05 | 113 | |
| 5 | 2005-06 | 117 | |
| 6 | 2006-07 | 122 | |
| 7 | 2007-08 | 129 | |
| 8 | 2008-09 | 137 | |
| 9 | 2009-10 | 148 | |
| 10 | 2010-11 | 167 | |
| 11 | 2011-12 | 184 | |
| 12 | 2012-13 | 200 | |
| 13 | 2013-14 | 220 | |
| 14 | 2014-15 | 240 | |
| 15 | 2015-16 | 254 | |
| 16 | 2016-17 | 264 | |
| 17 | 2017-18 | 272 | |
| 18 | 2018-19 | 26/2018 | 280 |
| 19 | 2019-20 | 63/2019 | 289 |
| 20 | 2020-21 | 32/2020 | 301 |
| 21 | 2021-22 | 73/2021 | 317 |
| 22 | 2022-23 | 62/2022 | 331 |
| 23 | 2023-24 | 21/2023 & 39/2023 |
348 |
New Cost Inflation Index (CII) for FY 2023-24/ AY 2024-25 notified by CBDT
CBDT Income Tax Notification 21/2023 dated 10/04/2023: New Cost Inflation Index (CII) for FY 2023-24/ AY 2024-25 at 348
CBDT Income Tax Notification 39/2023 dated 12/06/2023: New Cost Inflation Index (CII) for FY 2023-24/ AY 2024-25 at 348
Relevance of Cost Inflation Index (CII)/ Capital Gain Index?
Notably, the CII applies only to long-term capital gains, i.e., gains from the sale of long-term capital assets. To calculate taxable capital gains on short-term capital assets/gains, deduct the acquisition/improvement cost from the sale price. In the case of the transfer of a long-term capital asset, however, capital gains are determined by subtracting the indexed cost of acquisition/improvement from the sale consideration.
The indexed cost of acquisition/improvement is crucial in calculating long-term capital gains because it offers a more precise representation of the asset’s cost. The CII offers a more precise estimation of an asset’s cost by taking into account how inflation affects the purchasing power of money. The Central Government therefore updates the CII annually in line with the rate of inflation. The CII is an important factor to take into account when determining the amount of tax payable on the sale of a long-term capital asset. By taking the effects of inflation into account, the CII provides a more precise measurement of the cost of an asset, leading to a more precise calculation of capital gains.
The term ‘Cost Inflation Index/Capital Gain Index’ refers to the Central Government’s notification of the average increase in the ‘consumer price index’ during the preceding year. In contrast, the ‘indexed cost of acquisition’ is computed by multiplying the ‘cost of acquisition’ by the change in the ‘cost inflation index’ since the year of acquisition or April 1, 2001, whichever is later.
This formula is used to calculate long-term capital gains resulting from the sale of any long-term capital asset. Simply put, the purchase price is adjusted for inflation prior to taxing any gains from the total sale value. The difference between this indexed cost and the asset’s sale price is taxed as long-term capital gain.
Accordingly, the ‘Cost Inflation Index/ Capital Gain Index‘ for FY 2023-24 (new CII) is useful for calculating the ‘long term capital gains (LTCG)’ arising from the transfer of a long-term capital asset during FY 2023-24, i.e. ‘sale consideration’ minus ‘indexed cost of acquisition/improvement’
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Given the fact that commodity prices are volatile and hence CPI/ WPI can turn out to be materially different during the year, how does CBDT decide Cost inflation index at the start of a financial year? Is the cost inflation index subject to revision at the end of the year??
As you know CII is declared by CBDT based on CPI. So there is an auto correction feature (year on year) included in the process, since CPI calculation itself takes into account many parameters. Back to the point, CII is a notional figure which is worked out/ declared by CBDT at the early stage of a financial year. In fact there is no need to declare revised CII for any financial year even if there is a substantial inflation in the later part of that year. There are various scenarios where you can’t fit an actual inflation index for working out capital gains. Suppose an asset is acquired on 31/03/2017 and sold out on 10/04/2020, the inflation concerned may be of 3 years but the assessees will get benefit of indexation of 5 years under this system.
In case an asset is purchased prior to 01/04/2001 (let’s say in 1998), then how the indexed cost will be worked out?
In Finance Act 2017, base year has been shifted from 1981 to 2001. However, in case the asset has been purchased upto/ before 01/04/2001, cost of acquisition can be taken as fair market value (FMV) as on 01/04/2001 (in lieu of the original cost in 1998), which shall be subjected to indexation benefit as per above circular.
Is there any change in the formula for calculating the indexed cost using the CII, after shifting of base year to 2001?
To work out the long term capital gains/ losses, index cost (including for improvements) is reduced from the sale consideration. Indexed cost of acquisition/ improvement of an asset can be calculated using the ‘Cost Inflation Index (CII)’ notified by the CBDT from time to time. Formula for calculating the indexed cost/ improvement remains the same:
Indexed cost of acquisition/ improvement = actual purchase price/ actual improvement cost * cost inflation index applicable for the year of sale / cost inflation index applicable for the year of purchase
I gave the site for development and the developer obtained the occupation certificate on 01/12/2020 (FY2020-21). Now, I plan to sell one of the flat of my share after 01/12/2021 (FY2021-22). Please clarify will the profit come under LTCG and in which year?
Whether CII can be used for depreciable assets also, like Plant and Machinery?
In the case of a depreciable asset like Plant and Machinery, which forms part of a block of asset, any capital gain/ loss arising from the transfer thereof shall be treated as short-term capital gain/ loss, i.e. no indexation benefit available.
In case the Land was purchased prior to 2001 and Construction was completed in 2010 and Building was sold out in 2015, how the indexed cost of acquisition will be worked out?
We are two brothers. We inherited a property in 2015, which was originally split of land purchase by our father and subsequently a house was built upon it by him in 1986. The cost of the house was around 15 lakhs at that time. One of the brothers later constructed a house from his own resources on the roof of the said house, incurring a cost of about 40 lakhs. We are now selling off the property for 4 cr. How to calculate LTCG?
Applied in 1981 but DDA allotted the plot in 2012. However payment was made in 2018. From where the indexed cost rules applies for the purpose of capital gains?
How to obtain fair market value (FMV) of the property purchased in 1990. Also, if it’s undivided share of land registered at the time of registration, how to calculate the FMV?
I purchased flat in march 1994 for Rs 6.71 lac. I want to know what will be the indexed cost in 2000?
Purchase price in 2008 was Rs. 10 lacs. Now if I sell, what will be the indexed cost? Index for 2009 is 137 and for 2022 it’s 331. How to calculate the indexed cost of acquisition for LTCG?
I have purchased a flat in march 1999 for Rs 230,000. Now I am selling the same for Rs 4,000,000. Purchsing new flat for Rs 3,400,000 plus registration charges Rs 200,000 (total Rs 3,600,000). Balance Rs 400,000 I am useing for personal purpose. My question is shall I have to pay any LTCG tax on Rs 400,000 or not?
If a FMV of a property as of 01/04/2001 was Rs 10 lac and it is sold in May 2023 for Rs 45 lac (as per the market value), what will be the LTCG Tax?
What will I obtain if i do (CII of base yaar/CII of current year)*actual price? I know the correct formulae but I’m curious to know the above equation result… What would it depict?