The income tax department announces the current fiscal year's cost inflation index

It is often used to determine the "indexed cost of acquisition" for figuring out capital gains on the sale of any capital asset.

After correcting for inflation, taxpayers use the Cost Inflation Index (CII) to calculate profits on the sale of capital assets.

For the current fiscal year starting in April 2024, the income tax department has notified the Cost Inflation Index to be used in computing long-term capital gains from the sale of jewelry, stocks, and immovable property.

After correcting for inflation, taxpayers use the Cost Inflation Index (CII) to calculate profits on the sale of capital assets. According to a Central Board of Direct Taxes (CBDT) statement, the CII for the financial year 2024–25, which is applicable to the assessment year 2025–26, was 363.

The 2022–2023 fiscal year's CII number was 331, whereas the previous fiscal year's was 348. According to Moore Singhi Executive Director Rajat Mohan, the CII is a reflection of economic inflation, which raises prices for products and services over time.

The CII was set at 348 for the fiscal year 2023–2024. The index has been revised to 363 for the next fiscal year 2024–2025, an increase of 15 points that translates to an expected annual inflation rate of 4.3%.

This aligns with the 4.83 percent retail inflation rate that was noted in April 2024. Because a greater CII enables taxpayers to claim bigger tax refunds, they often favor it, according to Mohan. According to Sandeep Sehgal of AKM Global Partner-Tax, the index is helpful in adjusting capital gains for inflation so that taxpayers are only taxed on the assets' actual appreciation rather than profits as a result of inflation.

According to Sehgal, taxpayers may utilize this to compute profits on long-term capital assets sold during FY 24–25 and lower their tax obligations correspondingly. Under the Income-tax Act of 1961, CII receives notifications annually.

The "indexed cost of acquisition" is a commonly used formula for determining capital gains upon the sale of any capital asset. Generally, in order for an asset to be considered "long-term capital gains," it must be held for longer than 36 months (24 months for immovable property and unlisted shares, and 12 months for listed securities). In order to calculate taxable long-term capital gains (LTCG), the inflation-adjusted purchase price of assets is determined using the Consumer Price Index (CII). This is because rising prices for products eventually lead to a decline in purchasing power.