Cost Inflation Index (CII) for Financial Year 2024-25 Released by CBDT
The Central Board of Direct Taxes (CBDT) has officially released the Cost Inflation Index (CII) for the fiscal year 2024-25. This index is a crucial tool for taxpayers, helping them compute gains from the sale of capital assets while adjusting for inflation.
Importance of the Cost Inflation Index (CII)
The CII is primarily used to determine the “indexed cost of acquisition,” which is essential for calculating capital gains at the time of selling any capital asset. For an asset to qualify as a long-term capital gain (LTCG), it typically needs to be held for more than 36 months. However, this period is reduced to 24 months for immovable property and unlisted shares, and 12 months for listed securities.
Given the continuous rise in prices over time, which reduces purchasing power, the CII helps in adjusting the purchasing price of assets for inflation. This adjustment ensures that taxpayers are taxed on the real appreciation of their assets rather than nominal gains due to inflation.
CII for FY 2024-25
For the fiscal year starting April 2024, the CBDT has set the CII at 363. This marks an increase from the previous fiscal year’s index of 348, indicating an approximate annual inflation rate of 4.3%. The index for FY 2022-23 was 331, showing a consistent upward trend reflecting the economy’s inflation rate.
Impact on Taxpayers
With the new CII, taxpayers can calculate the inflation-adjusted gains for long-term capital assets sold during FY 2024-25, thereby potentially reducing their tax liability. A higher CII benefits taxpayers as it allows them to claim larger tax rebates by factoring in inflation, ensuring they are only taxed on the real increase in asset value.
Consistency with Retail Inflation
The updated CII aligns with the retail inflation rate of 4.83% recorded in April 2024, providing a realistic adjustment for taxpayers. By incorporating the CII in their calculations, taxpayers can accurately determine their taxable capital gains and optimize their tax obligations.
Annual Notification
The CII is notified annually under the Income-tax Act, 1961. This yearly update reflects the inflation trends, aiding taxpayers in making informed decisions regarding their capital gains and tax planning.
For more detailed information, taxpayers can refer to the official notification from the Central Board of Direct Taxes.
Also Read: CBDT Issues New Guidelines for Scrutiny of Income Tax Returns for FY 2024-25
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