Cost inflation index for FY 2021-22 used for LTCG calculation notified by income tax department

The Central Board of Direct Taxes (CBDT) has notified the cost inflation index (CII) for FY 2021-22 as 317 via a notification dated June 15, 2021. For the previous year, i.e., FY 2020-21, CII was notified as 301.

CII is used to calculate the inflation adjusted cost price of an asset. The inflation adjusted price then is used to arrive at long-term capital gains or long-term losses. The CII number is used to calculate inflation adjusted price of assets such as land, building, house, gold jewellery, debt mutual funds etc. However, it cannot be used for equity shares and equity mutual funds whose gains are taxable at the rate of 10 per cent without any indexation benefit.

At the time of income tax returns filing next year, this CII number will be helpful to you to ascertain the long-term capital gains on which you are liable to pay taxes.

As per the notification, CII for FY 2021-22 shall come into effect from April 1, 2022 and will be applicable to assessment year 2022-23 and subsequent assessment 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).

How it is calculated
The formula to calculate inflation-adjusted cost price is: (CII of the year of sale/CII for the year of purchase) * Actual cost price.

Given below is the table showing CII numbers since 2001-02

In Budget 2017, the government announced the shifting of base year from 1981 to 2001 due to the difficulties faced by the taxpayers in ascertaining the relevant information. In case of an asset purchased before April 1, 2001, the cost of asset acquired is taken as fair market value as on April 1, 2001.