9/1/2023 0 Comments Clear table picture stands![]() ![]() Tax authorities were also finding it difficult to rely on the valuation reports. But, taxpayers were facing hardships in getting the properties valued which were purchased before 1st April 1981. Initially, 1981-82 was considered as the base year. Why is the base year of Cost Inflation Index changed to 2001 from 1981? ![]() *Consumer Price Index compares the current price of a basket of goods and services (which represent the economy) with the cost of the same basket of goods and services in the previous year to calculate the increase in prices. The Central Government specifies the cost inflation index by notifying in the official gazette.Ĭost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year. In simple words, an increase in the inflation rate over time will lead to a rise in prices. The Cost Inflation Index is calculated to match the prices to the inflation rate. FMV is based on the valuation report of a registered valuer. ![]() Indexation benefit is applied to the purchase price so calculated. For any capital asset purchased before the base year of the cost inflation index, taxpayers can take the purchase price higher of the “actual cost or Fair Market Value (FMV) as on the 1st day of the base year. The index of all other years is compared to the base year to see the increase in inflation percentage. The base year is the first year of the cost inflation index and has an index value of 100. What is the concept of the base year in Cost Inflation Index? To benefit the taxpayers, the cost inflation index benefit is applied to the long-term capital assets, due to which purchase cost increases, resulting in lesser profits and lesser taxes. The cost inflation index is applied to the long-term capital assets, due to which purchase cost increases, resulting in lesser profits and lesser taxes to benefit taxpayers. When these assets are sold, the profit amount remains high due to the higher sale price as compared to the purchase price. Despite increasing inflation, they exist at the cost price and cannot be revalued. Long-Term Capital Assets are recorded at cost price in books. How is Cost Inflation Index used in Income Tax? Cost Inflation Index Table from FY 2001-02 to FY 2023-24 Financial Year In the long run, the application of the Cost Inflation Index for capital gain adjusts the purchase price of assets based on their sale price, resulting in smaller earnings and a lower tax amount. As a result, assessees must pay a greater income tax on these assets' gains. As a result, despite growing asset prices, these capital assets cannot be revalued.Īs a result, when these assets are sold, the profit or gain obtained from them remains high due to their high sale price in relation to their acquisition price. Long-term capital assets are typically documented in books at their cost price. The profit earned through the sale or transfer of any capital asset, such as land, property, stocks, shares, trademarks, patents, and so on, is referred to as capital gain. All rights reserved.A Cost Inflation Index table is used to calculate the long-term capital gains from a capital asset transfer or sale. Terms of Use and Privacy Policy and Safety Information / Your California Privacy Rights are applicable to you. ^ Back to Top ^ © 2023 ESPN Internet Ventures. You have reached a degraded version of because you're using an unsupported version of Internet Explorer.įor a complete experience, please upgrade or use a supported browser ![]()
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