On June 14 the government released it’s annual cost inflation index number. For those who wish to long term capital gains tax levied on debt mutual funds, property and other assets, the index is important.
Inflation index bonds
Principal & Coupon amounts are adjusted to compansate the investor for inflation.
How does it help in big tax savings?
The Central Board of Direct Taxes (CBDT) has shared that the Cost Inflation Index (CII) value for FY 2022-23 has grown to 331 from 317 a year back.
It may look isolated and irrelevant, but it is one of the most important numbers out there that help you save tax.
Cll denoate
If we take into consideration the CII value for FY23 i.e., 331, and the value for FY 2021-22 i.e., 317, it means there is an average increase of 4.42% in the prices of consumer goods and assets compared to the previous year.Remember this is not a flat increase in the price of all the products you consume or assets you have. In fact, this is an average increase, which means the prices of a few products may have increased more than others. There may also be instances where the prices of a few products have actually decreased.
Purpose of the CII value
When you sell a capital market asset or even property, you have to pay capital gains tax. This is the tax on the difference between sale price and the cost price. Typically, if you hold an asset for a very long time, the asset’s value (and therefore, its sale price) goes up significantly. The higher the difference (between the sale and cost price), the higher is your tax liability.However, due to inflation, the value of money goes down over time, and you have to spend more to purchase the same thing. In simple words, something that you would have purchased worth, say, Rs 100, many years ago, would automatically be worth much more today. Logically speaking, this inflationary price rise is not really the gain you make; your gains is the market price rise and on which you need to pay the tax.
In other words, CII values are used to arrive at the inflation-adjusted cost of acquisition of assets. It is applicable for assets and investments like real estate, gold and so on while calculating long-term capital gains from such assets. #investment #bond #Inflation index bonds # Inflation increase# Tax # Market price @Monika khatwani @Anshul aggarwal, CFA
Site Title 