I-T Department Notifies Cost Inflation Index For FY23 For Computing Long Term Capital Gains
MAS Team | 18 June 2022
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The Central Board of Direct Taxes (CBDT) has notified the cost inflation index (CII) for financial year (FY)2022-23 through a notification dated 14 June 2022. The CII for FY2022-23 relevant to assessment year (AY) 2023-24 is 331.
This notification will take into effect on 1 April 2023 and will apply to the assessment year 2023-24 and future years while calculating long term capital gains (or losses). Since prices of goods increase over time resulting in a fall in the purchasing power, the CII is used to arrive at the inflation adjusted purchasing price of assets so as to compute taxable long-term capital gains (LTCG).
Tax experts said this inflation index of 331 seems reasonable for the computation of capital gains in the case of sale of jewellery and real estate properties.
If an asset is purchased in year when cost inflation index was 100 and is sold in an year where such index is 300, then actual cost of such asset will be multiplied by 3 while calculating long-term capital gain on such asset.
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’.
By this notification, government has notified cost inflation index for FY22-23 as 331. For last FY, this index was 317. The index starts at 100 from FY 2001-02.
What is CII?
It is an index that is used to calculate the inflation-adjusted rise in the value of an asset. When it comes to the cost inflation index, there are two factors to keep in mind. This number will be used to calculate inflation-adjusted cost for only those assets that allow for inflation-adjusted (indexation benefit).
As a result, the CII value cannot be used to calculate LTCG/LTCL on equity mutual funds because any gains above Rs1 lakh during the financial year is taxed at a flat rate of 10% without the advantage of indexation.
Where is the CII used?
The CII is used to compute an asset's inflation-adjusted cost price. Long-term capital gains or losses are then calculated using the inflation-adjusted price.
The CII figure is used to compute the inflation adjusted value of assets including land, buildings, houses, gold jewellery, debt mutual funds, and so on. It cannot, however, be utilised for gains on equity shares and equities mutual funds that are taxed at a rate of 10% without any indexation benefit.
This CII number will assist you determine the long-term capital gains on which you are required to pay taxes when you file your income tax returns (ITR) next year.
Given below is the table showing CII numbers since FY2001-02:
How is indexation calculated
The formula to calculate inflation-adjusted cost price is: (CII of the year of sale/CII for the year of purchase) * Actual cost price.
The government declared in Budget 2017 that the base year would be changed from 1981 to 2001 due to challenges in obtaining appropriate information by taxpayers. In the case of an asset purchased prior to 1 April 2001, the cost of the asset is regarded as the fair market value on 1 April 2001.
Dear Investor,
In case of any grievance / complaint :
In case of any grievance / complaint :
- Please contact Compliance Officer Pankaj Raheja at [email protected] and Phone No. - 91-22-35131664.
- You may also approach CEO Debashis Basu at email- id [email protected] and Phone No. - 91-22-35131664.
