CBDT has notified the cost inflation index for FY 2024-25 vide Notification No. 44/2024 dated 24th May, 2024. The cost inflation index for FY 2024-25 is 363. This notification shall be relevant for AY 2025-26 and the subsequent years.
The original notification for the Cost Inflation Index (CII) was issued on June 5, 2017, under reference number S.O. 1790(E). Since then, it has been updated multiple times to accommodate changes in the economic environment. The most recent update before the current one of cost inflation index for FY 2024-25 was made via notification number S.O. 2571(E), dated June 12, 2023.
What is Cost Inflation Index?
The Cost Inflation Index (CII) in India is a critical tool utilized for adjusting the purchase price of assets for inflation, ensuring taxpayers can calculate capital gains more accurately. Introduced by the Indian government, the CII reflects the inflation rate and helps in mitigating the impact of inflation on long-term capital gains. This index is particularly beneficial when an asset is sold, as it allows the purchase price to be indexed to present value, thereby reducing the taxable capital gain.
Who notifies the Cost inflation Index?
As explained above, the cost inflation index for FY 2024-25 has been notified by CBDT. The Central Board of Direct Taxes (CBDT) is responsible for notifying the CII every year. The base year was changed from 1981 to 2001 in the financial year 2017-18, to align with the more recent economic environment.
The indexation helps in adjusting the cost of the asset to its inflation-adjusted value at the time of sale. By doing this, the capital gain that is subject to tax is often significantly reduced.
Cost Inflation Index of FY 2024-25 compared to previous years
As we are aware that CBDT notifies the Cost inflation index every year, let us have a look at the cost inflation index of FY 2024-25 over the years keeping FY 2001-02 as the base year (100).
The complete details of the journey of Cost Inflation index of FY 2024-25 over the years from the base year i.e. FY 2001-02 is as under:-
| Financial Year | Cost Inflation Index (CII) |
| 2001-02 | 100 |
| 2002-03 | 105 |
| 2003-04 | 109 |
| 2004-05 | 113 |
| 2005-06 | 117 |
| 2006-07 | 122 |
| 2007-08 | 129 |
| 2008-09 | 137 |
| 2009-10 | 148 |
| 2010-11 | 167 |
| 2011-12 | 184 |
| 2012-13 | 200 |
| 2013-14 | 220 |
| 2014-15 | 240 |
| 2015-16 | 254 |
| 2016-17 | 264 |
| 2017-18 | 272 |
| 2018-19 | 280 |
| 2019-20 | 289 |
| 2020-21 | 301 |
| 2021-22 | 317 |
| 2022-23 | 331 |
| 2023-24 | 348 |
| 2024-25 | 363 |
Cost Inflation Index for FY 2024-25 – Practical Example
The benefit of cost inflation index for FY 2024-25 can be explained by understanding its impact on the indexed cost of acquisition.
To compute the indexed cost of acquisition, the formula is:
Indexed Cost of Acquisition = (Cost of Acquisition * Cost Inflation Index of the year of sale) / Cost Inflation Index of the year of purchase.
If you bought a property in FY 2005-06 for ₹50 lakhs and sold it in FY 2024-25 for ₹6 crores, you would use the Cost Inflation Index of FY 2024-25 and FY 2005-06 to adjust the purchase price according to inflation. As given above, the Cost Inflation Index for FY 2005-06 and FY 2024-25 is 117 and 363 respectively.
Therefore, the indexed cost of acquisition = (Rs. 50 Lakhs * 363)/117
= Rs. 155.13 lakhs
Thus, instead of calculating the capital gains taking the cost of acquisition as Rs. 50 lakhs, we use the indexed cost of acquisition as Rs. 155.13 lakhs.
Without the benefit of indexation using the Cost Inflation Index of FY 2024-25 and FY 2005-06, the long term capital gain would be = Rs. 600 lakhs – Rs. 50 lakhs = Rs. 550 lakhs.
However, with the benefit of indexation the long term capital gain is = Rs. 600 lakhs – Rs. 155.13 lakhs = Rs. 444.87 lakhs.
Benefits of Cost Inflation Index for FY 2024-25
The Cost Inflation Index is an essential mechanism in the Indian tax system, allowing taxpayers to adjust the historical cost of assets to current prices, thus providing a fair method of calculating capital gains and protecting investors from the eroding effects of inflation.