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regular-article-logo Friday, 21 June 2024

Income Tax department sets Cost Inflation Index at 363 for financial year 2024-25

The index, employed by taxpayers to adjust gains from the sale of capital assets for inflation, is set at 363 for the financial year 2024-25, applicable for the assessment year 2025-26, according to a notification from the Central Board of Direct Taxes (CBDT)

Our Special Correspondent New Delhi Published 26.05.24, 11:18 AM
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The income tax department has notified the Cost Inflation Index for FY2025, which will be used to calculate long-term capital gains on the sale of immovable property, securities and jewellery.

The index, employed by taxpayers to adjust gains from the sale of capital assets for inflation, is set at 363 for the financial year 2024-25, applicable for the assessment year 2025-26, according to a notification from the Central Board of Direct Taxes (CBDT).

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This marks an increase from 348 in the previous fiscal year and 331 in 2022-23.

Moore Singhi executive director Rajat Mohan explained that the Cost Inflation Index reflects economic inflation, which drives up the prices of goods and services over time. The updated index of 363 for FY 2024-25 indicates a 15-point rise, corresponding to an approximate annual inflation rate of 4.3 per cent.

“This increase aligns with the 4.83 per cent retail inflation rate recorded in April 2024. Taxpayers generally favour a higher Cost Inflation Index as it enables them to claim larger tax deductions,” Mohan said.

Sandeep Sehgal, partner-tax at AKM Global, noted that the index helps adjust capital gains for inflation, ensuring that taxpayers are taxed on the real appreciation of assets rather than inflationary gains.

“Taxpayers can use this to calculate gains on long-term capital assets sold during FY 24-25 and thereby reduce their tax liability,” Sehgal said.

The index is issued annually under the Income-tax Act, 1961, and is widely used to determine the “indexed cost of acquisition” for calculating capital gains at the time of selling any capital asset.

To qualify as long-term capital gains, an asset typically must be held for more than 36 months, though the period is 24 months for immovable property and unlisted shares, and 12 months for listed securities.

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