The Ministry of Finance has announced the final Cost Inflation Index (CII) for FY25 (Assessment Year 2025-26) at 363. On May 24, 2024, the Central Board of Direct Taxes (CBDT) released Notification No. 44/2024-Income-Tax, which detailed the Cost Inflation Index (CII) for the fiscal year 2024-25, also known as Assessment Year 2025-26.
The notification was published in exercise of the authority conferred by clause (v) of the Explanation to Section 48 of the Income-tax Act, 1961, and contains additional changes to the prior notification issued on June 5, 2017.
The notification will go into effect on April 1, 2025, and will cover the evaluation year 2025-26. The Cost Inflation Index (CII) for FY 2023-24 was 348.
The purpose of CII
The Cost Inflation Index is an important tool for calculating long-term capital gains from the sale of immovable property, stocks, and jewellery after adjusting for inflation when filing income tax returns (ITR) the following year.
It adjusts the purchase price of assets to account for inflation, ensuring that taxpayers are taxed on actual gains rather than exaggerated nominal gains caused by general price increases. This approach is incorporated into the Income-tax Act of 1961 and helps to ensure equality in the tax system by acknowledging the degrading effect of inflation on the value of money over time.
Indexation allows one to reduce long-term capital gains, lowering taxable income.
