Cost Inflation Index FY 2023-24 / AY 2024-25

The cost of inflation index (CII) for the financial year 2023-24 has been notified by the Ministry of Finance. The ministry has set the Cost Inflation Index FY 2023-24 as 348. For the previous FY 2022-23, CII value was 331.

The rate of inflation for indexation purposes is specified by the Indian Government for every financial year.

The base year was shifted from 1981 to 2001 in Budget 2017.

This CII number is important as it is used to arrive at the inflation adjusted purchasing price of assets (indexed cost of acquisition) which have been sold or planned to be sold in FY 2023-24.

The indexed cost of acquisition is used in the calculation of Long-term capital gains (LTCG) or Long Term Capital Losses (LTCL).

Kindly note that CII is used to calculate inflation-adjusted cost only for those assets where inflation-adjusted (indexation benefit) is allowed. For example, in the cases of debt mutual funds, real-estate property, gold etc.,

The CII value cannot be used to arrive at LTCG/LTCL on equity mutual funds.  Index benefit is not allowed in case of bonds or debentures except capital indexation bonds or sovereign gold bonds issued by the RBI.

Latest Cost Inflation Index FY 2023-24 | CII Chart AY 2024-25

Below is the table of Cost Inflation Index numbers, as stipulated by the Income Tax Department. You can take values from the table to compute the indexed or inflation-adjusted cost of acquisition.  

How to Calculate the Indexed cost of purchase or indexed cost of Acquisition (ICoA)?

The indexed cost is calculated with the help of a table of cost inflation index as given above.

Divide the cost at which you purchased the Property/Investment by the index as on the date of the purchase. Multiply this by the index as on the date of sale.

ICoA = Original cost of acquisition * (CII of the year of sale/CII of year of purchase)

Let’s say you have invested in a non-equity oriented fund in August 2014. Your investment amount was Rs 2,00,000 (20,000 units @ Rs 10 each). Nine years later, you redeemed your investments in June 2023, at a value of Rs 3,00,000 (20,000 units @ Rs 15 each).

Hence, when you sold your investments, the value of your investments was Rs 3,00,000. Your investment made capital gains worth Rs 1,00,000. However, you need not pay tax on this entire amount of Rs 1,00,000.

All you need to do is apply the formula.

• Cost of acquisition is Rs 2 lakh.
• CII number for purchase year (2014-15) was 240.
• CII during sale year (FY 2023-24) is 348.

This would mean that your indexed cost price of acquisition would be –> (2,00,000 * 348/240) = Rs 2,90,000.

As again, your Long term capital gains would come down to Rs. 10,000 (Rs 3,00,000- Rs.2,90,000), you will be taxed 20% of this amount (as compared to Rs 1,00,000 without indexation) which will again, greatly reduce your tax obligations.

Thus, with Indexation, you can enjoy the benefits of your own investments without losing an excessive amount of taxes.

As per Budget 2023, no indexation benefit is available while calculating long-term capital gains on Specified Mutual Fund (i.e. a mutual fund which invests less than 35% of its proceeds in the equity shares of domestic companies). We can consider these specified funds as pure Debt oriented funds and any gains (STCG or LTCG) on these are now taxed as per income tax slab rate. This new rule is applicable for investments made on or after April 1, 2023 only. Read – Mutual Funds Taxation Rules FY 2023-24 (AY 2024-25) | Capital Gains Tax Rates Chart

CII Index Value for FY 2023-24 / AY 2024-25 | Notification

Below is the notification issued by the Ministry of Finance on Cost Inflation Index for FY 2023-24.

Suggested Reads :

1. What is Negative Real Interest Rate? | How Can Interest Rates Be Negative?
2. What is Indexation of Mutual Funds and why is it important for you?
3. Capital Gains Tax Exemption Options on Sale of House or Plot | Latest Rules 2023–24

(Post first published on : 24-July-2023)