CBDT notifies the Cost Inflation Index (CII) for the Financial Year 2023-24 vide Notification No. 21/2023 dated 10th April, 2023. The Cost Inflation Index for the FY 2023-24 relevant to AY 2024-25 is 348 for the purpose of computing capital gains.
Every year CBDT notifies the CII data for each financial year. In this process, the Cost Inflation Index or CII for the Financial Year 2023-24 is notified as 348. The same was at 331 in the last year 2022-23, an increase of 5.14 per cent over the preceding financial year.
This notification to notify the Cost Inflation Index (CII) for FY 2023-24 (AY 2024-25) is notified under clause (v) of the Explanation to section 48 of the Income-tax Act, 1961.
The importance of CII or the Cost Inflation Index is that this number is used to arrive at the inflation-adjusted cost price of assets transferred for the purpose of computing long-term capital gains.
The existing provisions of section 55 of the Act provide that for computation of capital gains, an assessee shall be allowed a deduction for the cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1st April 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1st April, 2001 or the actual cost of the asset as cost of acquisition.
Earlier, the Finance Act, 2017 had changed the base year for computing indexation from FY 1981-82 to FY 2001-02. This was done because the base year for computation of capital gains was more than three decades old and assessees were facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable property acquired before 01.04.1981 due to non-availability of relevant information for computation of the fair market value of such asset as on 01.04.1981.
In order to revise the base year for computation of capital gains, Section 55 of the Act was amended by Finance Act, 2017 so as to provide that the cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as fair market value as on 1st April, 2001 and the cost of improvement shall include only those capital expenses which are incurred after 01.04.2001.
The consequential amendment was also made in section 48 so as to align the provisions relating to the cost inflation index to the proposed base year.
This new base year of FY 2001-02 is applicable from 1st April, 2018 or assessment year 2018-19 and subsequent years.
Section 55 is further amended by Finance Act, 2020 (from the assessment year 2021-22 and onwards) to restrict the fair market value of an asset, being land or building or both, on 1st April, 2001 to the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available.
Cost Inflation Index (CII) for the base financial year 2001-02 is 100. Hence, the cost of the assets purchased on or before FY 2001-02 has increased by more than 3.48 times in 23 years of time.
NOTIFIED COST INFLATION INDEX UNDER SECTION 48, EXPLANATION (V)
As per Notification No. S.O. 1692(E) [No. 21/2023 (F.No. 370142/5/2023-TPL)], Dated 10-4-2023, the following table should be used for the Cost Inflation Index-
Cost Inflation Index or CII is used to calculate inflation-adjusted cost only for those assets where indexation benefit is allowed.
CII value cannot be used to compute long-term capital gains on equity mutual funds as they are taxed at a flat rate of 10 per cent without indexation benefit.
Similarly, Finance Act, 2023 has amended the Income-tax Act to provide that income from the transfer of units of debt mutual funds shall be treated as short-term capital gains. A new section 50AA is inserted into the Income-tax Act to provide that any gain arising from the transfer of units of a debt mutual fund shall be deemed to be short-term capital gains irrespective of the period of holding. Consequently, no indexation benefit of the cost of acquisition shall be available. Further, such deemed short-term capital gains shall be chargeable to tax at the applicable rates.
This amendment shall apply only in cases where the units of debt mutual funds are acquired on or after 01.04.2023. Hence, this provision will apply prospectively.
In the case of holdings as of 31.03.2023, if the same is held for more than 3 years, then any gain on transfer of those units will be taxed as long-term capital gains after applying for indexation benefit and will be taxed at a concessional rate of 20%. If such units are held for less than 3 years, then the gain on transfer of such units shall be taxed as short-term capital gains.
However, for other assets, CII value can be used.
How Cost Inflation Index Value is used
The formula to calculate the indexed cost price of the asset transferred is given below-
ICP=(CIIt/CIIp) x CP
Where,
ICP stands for Indexed Cost Price of the asset transferred
CIIt stands for CII value of the financial year in which asset is transferred
CIIp stands for CII value of the financial year in which asset was acquired
CP stands for the Cost Price of the asset transferred
Illustration:
Mr. Rakesh purchased a house property on 12.11.2007 for Rs 25 lakh which is sold on 16.06.2023 for Rs 70 lakh. Compute the long term capital gain.
Computation of Long Term Capital Gain:
One must remember that indexation with CII values is allowed only for long term capital assets and not for short term capital assets.
In case a person has income from capital gains, he cannot use ITR-1 for reporting the income from capital gains in his income tax return. He can use ITR-2 (if he has no business income) or ITR-3 (having business income).
Read more on Which ITR forms one should use
The indexed cost of acquisition in the case of long-term assets is allowed for adjustment of inflation which helps in reducing the income from capital gains and thus the long-term capital gains tax.
Update:
CBDT has clarified that the Cost Inflation Index (CII) notified on 10.04.2023 which is relevant for FY 2023-24 (AY 2024-25) and subsequent years is provisional and the final number shall be notified in due course.
This was informed by a tweet from the Income tax department. Thw tweet reads as follows-
CBDT notifies the Cost Inflation Index (CII) for FY 2023-2024 vide Notification No.21/2023 dated 10th April, 2023.
— Income Tax India (@IncomeTaxIndia) April 12, 2023
The Cost Inflation Index for FY 2023-24 relevant to AY 2024-25 & subsequent years is 348, which is provisional & the final number shall be notified in due course. pic.twitter.com/4TMG5q8IUS
In the author’s view, this is perhaps, for the first time the Board has notified the CII on a provisional basis. The reasons for notifying CII on a provisional basis are not stated. Normally, the CII is notified before the first instalment of advance tax and hence it is normally notified in June. Further, any upwards revision of CII from 348 will amount to higher payment of advance tax and any reduction in CII of 348 for FY 2023-24 will lead to a shortfall in payment of instalments of advance tax.
Read the full text of Notification No. 21/2023 dated 10.04.2023 on CII for FY 2023-24
MINISTRY OF FINANCE
(Department Of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 10th April, 2023
INCOME-TAX
S.O. 1692(E). In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Gazette of India, Extraordinary, vide number S.O. 1790(E), dated the 5th June, 2017, namely:-
2. In the said notification, in the TABLE, after serial number 22, the following serial number and entries relating thereto, shall be inserted, namely:-
TABLE
3. This notification shall come into force with effect from 1st day of April, 2024 and shall accordingly apply to the Assessment Year 2024-2025 and subsequent years.
[Notification No. 21/ 2023/F.No.370142/5/2023-TPL]
RAMAN CHOPRA, Jt. Secy.
Note:- The principal notification was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O.1790(E) dated 5th June, 2017 and was last amended vide S.O. 2735 (E), dated 14th June, 2022.
Download CBDT Notification No. 21/2023 dated 10.04.2023 notifying Cost Inflation Index (CII) for FY 2023-24 in PDF format
 for FY 2023-24 (AY 2024-25)){kind=link}
1 Comments
Income tax department at Bangalore and Tirupati not responding to my grievances and d E mails for the last 18 months @ rectification request is still pending @ refund amount not deposited to my bank account @ the amount was adjusted to tje outstanding demand @ Even though the notice under section 154 is not correct and not genuine @ they are creating mental agony to Pensioners / senior citizens @ we are corresponding with income tax department several times but they are not solving my problem.
ReplyDeletePadaga Chalapathi Rao
Aftpp2254h
Pensioner
Senior citizen
Kakinada
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9441435566
Please take necessary Action.
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