Income Tax department notifies cost inflation index for current fiscal

• The income tax department has notified the Cost Inflation Index for the current fiscal beginning April 2024, for calculating long-term capital gains arising from sale of immovable property, securities and jewellery.

Cost Inflation Index:

• The CII number is used to adjust the purchase price of assets on the basis of inflation.
• It is notified under the Income-tax Act, 1961 every year.
• It helps an individual to ascertain the inflation-adjusted current price of an asset.
• It also helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.
• Capital gain refers to the profit acquired from the sale/transfer of any capital assets, including land, property, stocks, shares, trademarks, patents, etc.
• Normally, an asset is required to be retained for more than 36 months (24 months for immovable property and unlisted shares, 12 months for listed securities) to qualify as 'long-term capital gains'.
• It helps taxpayers offset the impact of inflation as the difference between the purchase and sale price could be substantial due to rising prices.
• The application of the Cost Inflation Index for capital gain adjusts the purchase price of assets based on their sale price, resulting in smaller earnings and a lower tax amount.
• From FY 2023-24, the indexation benefit on long-term capital gains from non-equity mutual fund schemes has been removed.
• A taxpayer will continue to use the CII number to calculate long-term capital gains from house property, land, and building in the event of a sale.

Prelims Takeaway:

• Cost Inflation Index
• IT Act, 1961