CII for 2023

CII for 2023

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April 24, 2023

The department of Income Tax has announced theCost Inflation Index for Fiscal Year 2023, which begins in April 2023. According to a Central Board of Direct Taxes (CBDT) statement, the Cost Inflation Index number for the current fiscal year 2023-24 is 348. Since 2001, the Cost Inflation Index has been reported annually in June under the Income-tax Act of 1961. However, this year's CII is announced three months sooner than the previous fiscal year. This CII number will be required by taxpayers when completing their ITR or, income tax returns for the fiscal year 2024-25.

The CII or, the Cost Inflation Index is used to compute the Indexed or, Inflation Adjusted Cost of a long-term asset in order to calculate capital gains. Once the capital gains are computed, the income tax due on such profits is computed. This CII number will be required when you file your ITR or, income tax return for the fiscal year 2024-25.

When does the Cost Inflation Index figure come into play? - The Cost Inflation Index figure is used to modify asset acquisition prices based on inflation. The CII number assists a person in determining the inflation-adjusted current price of an asset. This, in turn, aids in estimating capital gains from the sale of such assets after accounting for inflation. When an individual sells a house, land or building, the CII number is used to determine long-term capital gains. The CII number was used to calculate long-term capital gains from non-equity mutual fund schemes until FY 2022-23 (ended March 31, 2023). These include, among other things, debt mutual fund schemes, foreign equity mutual fund schemes, and gold mutual fund schemes. However, beginning in fiscal year 2023-24, the Indexation advantage on long-term capital gains from non-equity mutual fund schemes has been eliminated.

What is the formula for determining the inflation-adjusted purchasing price? - As previously stated, the CII figure is used to compute a long-term asset's inflation-adjusted price. The CII is used to determine the inflation-adjusted price as follows:

Inflation-adjusted price = (CII of the selling year/CII of the purchase year) * Asset's actual price

An example - Assume you paid Rs 15 lakh for a home in the fiscal year 2002-23. In the current fiscal year, the inflation-adjusted price of such property will be (348/105)*15 lakh = Rs 49.71 lakh. If you sell the house today for more than this amount, you will have long-term capital gains. If the selling price falls below this level, it will result in a long-term capital loss. The length of time the asset has been kept determines whether the capital gains are long-term or short-term. The holding duration was likewise variable.

Source - The HINDU