The Income Tax (IT) Department has notified the cost inflation index (CII) for 2022-23 to calculate long-term capital gains (LTCG) arising from the sale of immovable property, securities and jewellery.
- The Cost Inflation Index for FY 2022-23 relevant to AY 2023-24 is 331.
- The cost inflation index (CII) is used by a taxpayer to compute gains arising out of the sale of capital assets after adjusting for inflation.
What is Cost Inflation Index (CII)?
- Normally, a property 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.
- Since the prices of goods increase over time resulting in a fall in the purchasing power, the Cost Inflation Index (CII) is used to arrive at the inflation-adjusted purchasing price of assets to compute taxable long-term capital gains (LTCG).
- If a person sells a capital market asset or even property, he has to pay long term capital gains tax (LTCG). This is the tax on the difference between sale price and the cost price.
- If a person hold an asset for a very long time, the asset’s value goes up significantly. The higher the difference (between the sale and cost price), the higher is tax liability.
- Due to inflation, the value of currency goes down over time, and a person has to spend more to purchase the same asset.
- Something that a person would have purchased worth, say, Rs 1000, many years ago, would automatically be worth much more today.
- This inflationary price rise is not really the gain a person makes; that person’s gains is the market price rise and on which he needs to pay the tax.
- To give relief to taxpayers, the government passes on this benefit of inflation to that person, through the Cost Inflation Index (CII).
- The CII artificially increases the cost price so that the difference between the sale and cost prices narrows down.
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