The Indian income tax department has released the cost inflation index (CII) for the current fiscal year, set at 348, compared to the previous year’s 331. The CII is used to determine long-term capital gain liability on the sale or transfer of assets such as property, trademarks, patents, and shares. The index is used to adjust the purchase price of an asset based on inflation, thereby reducing the long-term capital gains tax liability.
The historical cost or acquisition cost of an asset is reported on the taxpayer’s books. Due to the effect of inflation, the gap between the purchase price and the sale price may get inflated, and inflation indexing helps to provide relief to taxpayers from the effect of price rise.
Normally, the CII is notified in June, but this year’s CII has been released three months earlier, which allows taxpayers to accurately calculate the tax on long-term gains in the first quarter of FY 2023-24 and remit the necessary advance tax. The early notification helps taxpayers to remit advance tax on time, according to AMRG & Associates senior partner Rajat Mohan.
The inflation index has been notified on a provisional basis, and it may be said that it is rising faster compared to last year, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm. The provisional notification is probably due to the payment of advance tax instalments that are due on or before June 15, 2023.
Maheshwari believes that taxpayers in the country will have a tentative idea by then to calculate the advance tax on the capital gains assuming the final index is notified somewhere after 15 June. The early notification of the CII enables taxpayers to plan their finances better and helps them avoid any last-minute tax hassles.
In summary, the early notification of the cost inflation index by the Indian income tax department for the current fiscal year will help taxpayers to accurately calculate the tax on long-term gains and remit the necessary advance tax. The CII allows taxpayers relief from the effects of inflation and enables them to plan their finances better.