I-T department notifies cost inflation index for FY22 for computing long-term capital gains

"Covid pandemic led to the economy's contraction, high revenue deficit, widening fiscal deficit, even then overall inflationary graph never spiked like what it used to be before 2013. All this led to a very nominal increase of 16 points in the cost of inflation index over the last financial year, and the inflationary impact of Covid could not be seen on the same," AMRG & Associates Senior Partner Rajat Mohan said.

This inflation index of 317 seems "reasonable for the computation of capital gains in the case of sale of Jewellery and real estate properties during FY 2021-22, as the prices of both have remained intact even during the Covid times, Mohan added.

This CII number would help taxpayers to compute the long-term capital gains on which they are liable to pay income tax. Nangia & Co LLP Partner Shailesh Kumar said for calculation of taxable income in nature of "long term capital gain", original cost of capital asset (including immovable property, shares, securities, jewellery, etc.) is indexed to level of cost inflation in the year of sale as compared to cost inflation index in year of purchase of asset.

Explaining how the CII works in calculating long term capital gains, Kumar said if an asset is purchased in year when cost inflation index was 100 and is sold in an year where such index is 300, then actual cost of such asset will be multiplied by 3 while calculating long term capital gain on such asset.

Normally, an asset is required to be retained for more than 36 months (24 months for immovable property and unlisted shares, 12 months for listed securities) to qualify as "long term capital gains".

"By this notification, Government has notified cost inflation index for Financial Year 2021-22 as 317. For last Financial Year 2020-21, this index was 301. The index starts at 100 from Financial Year 2001-02," he added.

Mohan said since prices of goods increase over time resulting in a fall in the purchasing power, the CII is used to arrive at the inflation adjusted purchasing price of assets so as to compute taxable long term capital gains (LTCG).