Cost Inflation Index for the financial year 2024-25 notified - Finance Ppl

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Cost Inflation Index for the financial year 2024-25 notified

Whats the news?

CBDT has notified the Cost Inflation Index (CII) for financial year 2024-25 as 363 via Notification No. 44/2024 dated 24 May 2024.

What is Cost Inflation Index and how is this relevant?

As the name suggests, Cost Inflation index is a tool used to adjust the purchase price of an asset so as to give effect to inflation impact and arrive at what is called indexed cost of acquisition, while calculating capital gains for purpose of taxation.
Used to adjust the original purchase price of an asset to its inflation adjusted present day equivalent/current price, Indexed cost of acquisition is nothing but present value of the past purchase, for taxation purposes.

Details of the news byte

CBDT has fixed the CII for Financial Year 2024-25 at 363 as against 348 for Financial Year 2023-24, an increase of 4.3%. As usual, the index shall come into force for tax calculation purposes with effect from 01st April of the Assessment year relevant to the FY for which index is notified..

Any special observation about this?

When the Cost Inflation Index (CII) increases from 348 (FY 2023–24) to 363 (FY 2024–25), it directly impacts the indexed cost of acquisition used in long-term capital gains (LTCG) calculations.

  1. Higher CII = Higher indexed Cost of the asset.
  2. Higher the 'Indexed' cost =Lower the taxable capital gain
  3. Lower the taxable capital gain= Lower the LTCG tax liability.

Hence this increase in cost inflation index would typically reduce the taxable capital gain on the asset sold during the said period (financial year 2024-25)

But, it is pertinent to note that the concept of indexation is applicable only For assets acquired before July 23 2024 where the indexation benefit continues to be available and assessee has the option to choose 20% LTCG tax with indexation, or 12.5% LTCG tax without indexation.

For acquired on or after July 2024. LTCG is now taxed at flat 12.5% without adjusting the purchase price for any indexation. The finance Act 2024 introduced changes that eliminated Indexation benefit for several long-term capital assets wef 23.7.2024.