How to Correctly Calculate Long-Term Capital Gains with Annual Inflation Adjustment: CBDT's Latest Notification Has The Answer

The Cost Inflation Index (CII) is a tool used to estimate how much an asset's price increases each year because of inflation.
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How to Correctly Calculate Long-Term Capital Gains with Annual Inflation Adjustment (Image Source: iStock)

Suppose, you bought a property last year. Now you want to sell it. But, how much is the property worth now? What are the parameters of cost calculation? Do such things exist? Read on further to find out.

How The Price Of The Property Calculated?

What Is Inflation?

The global economy is always changing, and this is clear from the decreasing purchasing power of money due to rising prices of goods and services. This reduction in the value of money, which makes the cost of living higher, is called inflation.

What Is The Cost Inflation Index?

The Cost Inflation Index (CII) is a tool used to estimate how much an asset's price increases each year because of inflation.

How Is This Index Set?

The Central Government sets this index and publishes it in its official gazette to measure inflation.

When Is It Updated?

The index, updated each year by the Government, is defined under Section 48 of the Income Tax Act, 1961.

Why Is It Important?

This index is crucial for calculating long-term capital gains from selling assets like property, securities, and jewelry.

Why Is It In The News?

The Income Tax Department has released the new Cost Inflation Index (CII) for the financial year starting April 2024.

What Will Be The CII For This Fiscal Year?

On May 25, the Central Board of Direct Taxes (CBDT) announced that the CII for the current financial year (2024-25) is set at 363. This index will be relevant for the assessment year 2025-26 and beyond.

How CII Calculated?

It adjusts the original purchase price of an asset to account for inflation, making it more reflective of its real value today. This adjustment can reduce the calculated capital gain and potentially lower the taxes you have to pay on the sale.
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