The cost Inflation Index has Increased for FY25
The income tax department has announced the cost inflation index (CII) for FY25, applicable to the assessment year 2025-26, at 363. This is an increase from 348 for FY24 and 331 for FY23. The CII is used to measure inflation for calculating long-term capital gains on the sale of assets such as real estate, securities, and jewelry.
By adjusting the purchase price of assets for inflation, the CII ensures that taxpayers are taxed on real gains rather than nominal gains inflated by general price increases. This adjustment is crucial for maintaining a fair tax system. Without it, taxpayers might face excessive tax liabilities on gains that are primarily due to inflation rather than actual economic growth, experts say.
When selling assets like real estate, securities, or jewelry, the profit from these sales is often high due to the increased sale price compared to the purchase price. Consequently, taxpayers owe higher income tax on these gains. “Taxpayers can use this (CII) to calculate gains for long-term capital assets sold during FY25 and reduce their tax liability accordingly,” said Sandeep Sehgal, partner-tax at AKM Global.
The Cost Inflation Index is based on the Consumer Price Index (CPI) of the preceding year, which measures the average price level of a basket of goods and services consumed by households. The Central Board of Direct Taxes (CBDT) sets and publishes the CII annually in its official gazette, under Section 48 of the Income Tax Act, 1961.
The latest revision for FY25 reflects inflationary trends, protecting taxpayers from excessive capital gains taxes and ensuring a fair tax framework, said Rahul Charkha, partner at Economic Laws Practice. “Consistent updates to the CII are essential to adapt to economic changes, preserving the accuracy and equity of the tax system,” he added.
