The Cost Inflation Index is a crucial tool used in the calculation of long-term capital gains arising from the sale of immovable property, securities and jewellery after adjusting inflation when they file income tax returns (ITR) next year.
With the help of indexation, one will be able to lower her/his long-term capital gains, which brings down taxable income.
The Ministry of Finance has notified the final Cost Inflation Index (CII) for FY25 (Assessment Year 2025-26) at 363.
The ministry through the Central Board of Direct Taxes (CBDT), issued Notification No. 44/2024-Income-Tax on May 24, 2024, detailing the Cost Inflation Index (CII) for the financial year 2024-25 i.e. Assessment Year 2025-26.
The notification was made in exercise of the powers granted by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961, and introduces further amendments to the previous notification issued on June 5, 2017.
The notification will come into effect on April 1, 2025, and will apply to the assessment year 2025-26.
The Cost Inflation index (CII) for FY 2023-24 was 348.
Purpose of CII
The Cost Inflation Index is a crucial tool used in the calculation of long-term capital gains arising from the sale of immovable property, securities and jewellery after adjusting inflation when they file income tax returns (ITR) next year.
It adjusts the purchase price of assets to account for inflation, thereby ensuring that taxpayers are taxed on their real gains rather than the nominal gains inflated by general price increases. This mechanism is embedded in the Income-tax Act, 1961, and helps maintain equity in the tax system by recognizing the eroding effect of inflation on the value of money over time.
With the help of indexation, one will be able to lower her/his long-term capital gains, which brings down taxable income.
