Income Tax Dept notifies cost inflation index for FY25 as 363: What it means

The cost inflation index (CII), which is used for calculating long-term capital gains subject to taxation on assets like jewellery, securities and immovable properties, has been notified for the financial year 2024-25 (FY25).

"The Cost Inflation Index for FY 2024-25 relevant to AY (Assessment Year) 2025-26 and subsequent years is 363," the Income Tax Department said in a circular issued on Saturday, May 25.

The CII has been raised by 15 points as compared to 348 in FY24. The index stood at 331 in FY23.

What CII means, how it helps

CII is an index that is used to estimate the nominal increase in an asset's value due to the impact of inflation. It is equal to 75% of the average annual increase in the consumer price index (CPI) inflation in urban areas.

When an item purchased a few years ago is sold during a specific financial year, the indexed cost of the asset is required. To determine this cost, also known as the inflation-adjusted price, the Income Tax Department notifies the CII for each fiscal year.

While computing taxes on the sale of long-term assets, taxpayers are required to consider the indexed cost of acquisition, instead of the original purchase price.

The indexed cost of acquisition is determined using the following formula: [CII for the year of transfer (sale)*cost of acquisition]/CII for either the year 2001-2002 or the first year the asset was retained by the assessee, whichever comes later]

For example, a person spent ₹7,00,000 on vehicles on July 15, 2016, and sold them on May 1, 2020. For the purchasing year - FY16, the CII was 254, and for the sale year - FY21, the CII stood at 301.

As a result, the indexed cost of acquisition will be ₹8,29,527 (approximately), as calculated using the following formula: (7,00,000*301/254).