CBDT has notified the ‘Cost Inflation Index (CII)’ for FY 2020-21/ AY 2021-22 at 301 for determining ‘long term capital gains (LTCG)’ under Income Tax.
It may be noted that the Finance Act 2017 has amended ‘cost inflation index’ provisions, i.e. relating to indexation for determining long term capital gains (LTCG). The Base year has been shifted from FY 1981-82 to FY 2001-02. The assessees can now exercise option to use Fair Market Value (FMV)/ Indexed Cost of Acquisition for arriving at the figure of LTCG, regarding assets acquired prior to 1 Apr. 2001.
Cost Inflation Index Chart/ Table with base Year 2001-02 (Applicable for FY 2001-02 to FY 2020-21)
|SI. No.||Financial Year (FY)||Cost Inflation Index (CII)|
S.O.1879(E).- In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Gazette of India, Extraordinary, vide number S.O. 1790(E), dated the 5th June, 2017, namely:-
2. In the said notification, in the Table, after serial number 19, the following serial number and entries relating thereto, shall be inserted, namely:-
|Sl. No.||Financial Year||Cost Inflation Index|
3. This notification shall come into force with effect from 1st day of April, 2021 and shall accordingly apply to the assessment year 2021-22 and subsequent years.
Note:- The principal notification was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 1790(E), dated the 5th June, 2017 and last amended by the notification number S.O.3266 (E), dated the 12th September,2019.
Relevance of Cost Inflation Index (CII)?
In the case of transfer of short term capital asset, the amount of capital gains can be arrived at by deducting the ‘cost of acquisition/ improvement’ from the ‘sale consideration’. However, in the case of transfer of long term capital asset, capital gains are determined by deducting ‘indexed cost of acquisition/ improvement’ from the ‘sale consideration’.
‘Cost Inflation Index’ basically means the index notified by the Central Govt. with reference to average rise in the ‘consumer price index’, during the year immediately preceding the relevant previous year. However, ‘indexed cost of acquisition’ is arrived at by multiplying the ‘cost of acquisition’ with the change in ‘cost inflation index’ since the year of acquisition or 1 April, 2001 whichever is later.
Accordingly, the ‘Cost Inflation Index’ for FY 2020-21 (new CII) is useful for working out the ‘long term capital gains (LTCG)’ during FY 2020-21, from transfer of long term capital asset, i.e. ‘sale consideration’ minus ‘indexed cost of acquisition/ improvement’.