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Cost inflation index for FY 2020-21

 

The Cost Inflation Index (CII) for the financial year (FY) 2020-21 has been notified as 301 by the Ministry of Finance. The notification is dated June 12, 2020. For the previous financial year CII was 289.

 

This number is important as it is used to arrive at the inflation adjusted purchase price of assets and thereby long-term capital gains (LTCG) on it when it is sold. This index will be used to compute the long-term capital gains/long-term capital losses (LTCL) on assets such as property, gold , debt mutual fund units held for more than 3 years which are sold in FY 2020-21.

 

According to the finance ministry notification, CII for FY 2020-21 shall come into force with effect from 1st day of April, 2021 and shall accordingly apply to the assessment year 2021-22 i.e. FY2020-21 and subsequent years.

 

What is Cost Inflation Index?

It is an index used to calculate the notional increase in the value of an asset due to inflation. There are two things that individuals need to keep in mind regarding the cost inflation index.

 

Firstly, this number will be used to calculate inflation-adjusted cost only for those assets where inflation-adjusted (indexation benefit) is allowed. Therefore, the CII value cannot be used to arrive at LTCG/LTCL on equity mutual funds as the amount that exceeds Rs 1 lakh per fiscal is taxed at a flat rate of 10 per cent without indexation benefit.

 

Secondly, this CII number will be required to calculate LTCG for FY 2020-21 for the assets where indexation is allowed before levy of LTCG tax. The taxes on these gains will be paid by you while filing your income tax returns (ITR) for FY 2020-21 (AY 2021-22).

 

 

The formula to calculate inflation-adjusted cost price is: (CII number of sale/CII number of purchase) * Actual cost price.



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