Cost inflation index as per income tax act Archives

Cost Inflation Index for FY 2023-24 is 348

Income Tax Notification No. 21/2023, dated April 10, 2023

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:-

In the said notification, in the TABLE, after serial number 1, the following serial number and entries relating thereto, shall be inserted, namely:-

Cost Inflation Index from 2001-02 to 2023-24

SI. No.	Financial Year	Cost Inflation Index (Provisioanl)
1	2001-02	100
2	2002-03	105
3	2003-04	109
4	2004-05	113
5	2005-06	117
6	2006-07	122
7	2007-08	129
8	2008-09	137
9	2009-10	148
10	2010-11	167
11	2011-12	184
12	2012-13	200
13	2013-14	220
14	2014-15	240
15	2015-16	254
16	2016-17	264
17	2017-18	272
18	2018-19	280
19	2019-20	289
20	2020-21	301
21	2021-22	317
22	2022-23	331
23	2023-24	348

This notification shall come into force with effect from the 1st day of April, 2024 and shall, accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment 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 the 5th June, 2017 and last amended by the notification number S.O 2735(E), dated the 14th June, 2022.

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Cost Inflation Index for Financial Year 2020-21 under Income Tax Act

Cost inflation index for Financial Year 2020-21 AY 2021-22 under Income Tax Act

Cost Inflation Index is calculated to match the prices to the inflation rate. It is tool used to calculate the estimate increase in the value of asset due to inflation. In simple words, an increase in the inflation rate over time will lead to a rise in the prices. The government notifies the cost inflation index every year through official gazette. This index, notified each year by the Government is defined under Section 48 of the Income Tax Act, 1961. The government with Notification No. 32/2020-Income Tax dated 12th June, 2020 has notified the cost inflation index for Fy 2020-21 AY 2021-22 which is as follows:

Financial Year	Cost Inflation Index
2020-21	301

This notification shall come into force with effect from 1st day of April, 2021 and shall accordingly apply to the assessment year 2021-22 and subsequent years.

Cost Inflation Index from FY 2001-02 to FY 2020-21

Below is the cost inflation index table notified till date from FY 2001-02 to FY 2020-21 by the government of India:

Financial Year	Cost Inflation Index
2020-21	301
2019-20	289
2018-19	280
2017-18	272
2016-17	264
2015-16	254
2014-15	240
2013-14	220
2012-13	200
2011-12	184
2010-11	167
2009-10	148
2008-09	137
2007-08	129
2006-07	122
2005-06	117
2004-05	113
2003-04	109
2002-03	105
2001-02	100

How is Cost Inflation Index used in Income Tax?

Cost Inflation Index is used at the time of calculating Long term capital gains on Long-Term Capital Assets which are recorded at cost price in books. In spite of increasing inflation, the capital asset exist at the cost price and cannot be revalued. At the time of sale of these assets, the capital gain is high due to the high sale price compared to purchase price. This also leads to a higher income tax. The cost inflation index is applied to the long-term capital assets, due to which purchase cost increases, resulting in lesser capital gain and benefit the taxpayers by saving taxes. It is used to calculate index price of the asset.

It is used as follows:

Indexed cost of acquisition =

Cost of acquisition of asset (X) Cost of Inflation for the year of transfer
__________________________________________
Cost of Inflation for the year of Purchase

Note: Long term capital asset are assets which held for more than 36 months by the assessee

Understand the concept with example

For instance,

Mr. X has purchased Capital asset as on 31^st May 2005 for Rs. 25 Lakhs and sold the asset on 1^st June 2020 for Rs. 2 Crore. Transfer expense for is Rs. 2,00,000

Cost inflation index is as follows:

FY 2005-06: 117

FY 2020-21: 301

Let us calculate the Long term capital gain on the above sale:

As asset is held for more than 36 month the asset is long term capital asset.

Calculation of Long term capital gain

	Particulars	Amount
	Full Value of Consideration	2,00,00,000
Less:	Transfer Charges	2,00,000
	Net Consideration	1,98,00,000
Less:	Indexation Cost of Asset (25,00,000 X 301/117= Rs. 64,31,624)	64,31,624
	Long term Capital Gains	1,33,68,376