IT DEPARTMENT NOTIFIES COST INFLATION INDEX FOR F.Y 2021-22
The Income Tax Department has notified the cost inflation index for current Financial year beginning April 2021 for calculating long-term capital gains arising from sale of immovable property, securities and jewellery.
What is Cost Inflation Index?
It is an index used to calculate the notional increase in the value of an asset due to inflation. There are two things that individuals need to keep in mind regarding the cost inflation index.
Firstly, this number will be used to calculate inflation-adjusted cost only for those assets where inflation-adjusted (indexation benefit) is allowed. Therefore, the CII value cannot be used to arrive at LTCG/LTCL on equity mutual funds as the amount that exceeds Rs 1 lakh per fiscal is taxed at a flat rate of 10 per cent without indexation benefit.
Secondly, this CII number will be required to calculate LTCG for FY 2020-21 for the assets where indexation is allowed before levy of LTCG tax. The taxes on these gains will be paid by you while filing your income tax returns (ITR) for FY 2020-21 (AY 2021-22).
The cost inflation index (CII) is used by taxpayer to compute gains arising out of sale of capital assets after adjusting inflation.
The Central Board of Direct Taxes (CBDT) on June 15 notified the cost inflation index for the current fiscal (2021-22).
“The Cost Inflation Index for FY 2021-22 relevant to AY 2022-23 & subsequent years is 317,” the Central Board of Direct Taxes said while notifying the CII number.
This inflation index of 317 seems reasonable for the computation of capital gains in the case of sale of jewellery and real estate properties.
“Covid pandemic led to the economy’s contraction, high revenue deficit, widening fiscal deficit, even then overall inflationary graph never spiked like what it used to be before 2013. All this led to a very nominal increase of 16 points in the cost of inflation index over the last financial year, and the inflationary impact of Covid could not be seen on the same.
Even During the Covid-19, this inflation index of 317 seems “reasonable for the computation of capital gains in the case of sale of Jewellery and real estate properties during FY 2021-22, as the prices of both have remained intact.
This CII number would help taxpayers to compute the long-term capital gains on which they are liable to pay income tax.
Calculation of taxable income in nature of ‘long-term capital gain’, original cost of capital asset (including immovable property, shares, securities, jewellery, etc.) is indexed to level of cost inflation in the year of sale as compared to cost inflation index in year of purchase of asset.
Explaining how the CII works in calculating long-term capital gains, Mr. Kumar said 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 Financial Year 2021-22 as 317. For last Financial Year 2020-21, this index was 301. The index starts at 100 from Financial Year 2001-02.
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