Latest news with #FinanceActof2024
Hans India
3 days ago
- Business
- Hans India
Govt raises cost inflation index to 376, boosts tax relief on asset sales
New Delhi: The Central Board of Direct Taxes (CBDT) has increased the cost inflation index (CII) used for calculating inflation-adjusted asset prices, allowing taxpayers to claim greater relief on long-term capital gains. As per the latest notification, the CII has been revised to 376 for the financial year 2025-26 (FY26), up from 363 in the previous year. The cost inflation index helps adjust the purchase price of an asset to account for inflation. This adjustment reduces the taxable capital gain, which is calculated as the difference between the sale price and the inflation-adjusted purchase price. A higher index means a higher adjusted cost, which, in turn, lowers the tax burden on sellers. This revised index will apply for FY26 and the assessment year 2026-27, when tax returns for income earned in FY26 will be filed. The purpose behind using this method is to ensure that capital gains tax is charged only on real profits and not on gains caused by inflation. However, there have been changes to the overall rules regarding indexation. As part of the government's tax simplification efforts, the Finance Act of 2024 introduced new rules for capital gains tax. Under the updated rules, indexation benefits will mainly be available for assets sold before July 23, 2024. For sales made after this date, resident individuals and Hindu Undivided Families (HUFs) can still claim indexation benefits -- only if the asset was acquired before July 23, 2024. In such cases, they can choose to pay a 20 per cent long-term capital gains tax with indexation, instead of the new flat 12.5 per cent rate without indexation. However, this option is not available to non-resident Indians (NRIs), companies, or limited liability partnerships (LLPs), who must follow the new flat-rate system. The revision in the inflation index comes as a relief for many taxpayers looking to sell long-term assets like land, property, or shares, especially those who are still eligible for indexation under the grandfathering clause.
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Business Standard
3 days ago
- Business
- Business Standard
CBDT raises cost inflation index to 376 for FY26 to ease capital gains tax
The Central Board of Direct Taxes (CBDT) has increased a key index used to adjust the purchase price of assets for inflation, allowing sellers to claim higher tax relief when they sell those assets. According to an official notification issued on July 1, the Cost Inflation Index (CII) has been raised to 376 for the financial year 2025–26, up from 363 the previous year. This index helps adjust the purchase price of assets to account for inflation, which in turn lowers the taxable capital gains on their sale. Capital gains are calculated as the difference between the sale price and the inflation-adjusted purchase price, with the cost of improvements also taken into account. The revised index will be applicable for the current financial year (FY26) and the assessment year 2026–27 onwards. The assessment year is the period when income earned in the previous financial year is assessed and tax returns are filed. The idea behind this mechanism is that long-term capital gains (LTCG) on assets like land and buildings should reflect real profits, not just gains resulting from inflation. Scope of indexation narrowed While the indexation benefit has been revised, its availability has been reduced. The Finance Act of 2024 introduced changes to the capital gains tax system as part of the government's aim to simplify tax laws. Under the new rules, indexation is largely allowed only for assets sold before 23 July 2024. However, a grandfathering provision allows resident individuals and Hindu Undivided Families (HUFs) to continue claiming indexation benefits after this date, as long as the asset was bought before July 23, 2024. In these cases, taxpayers may choose to pay LTCG tax at 20 per cent with indexation or opt for a flat 12.5 per cent rate without indexation. Impact of CBDT notification on tax-payers The CBDT move will offer limited but meaningful relief to certain taxpayers — particularly those planning to sell long-held assets like land and buildings acquired before July 23, 2024. The CII has historically been used to adjust the purchase price of assets for inflation when calculating long-term capital gains. This mechanism ensured that taxes applied only to actual gains, excluding inflation-driven increases in asset value. It was relevant for a broad set of assets including real estate, intellectual property, gold, and financial securities, according a LiveMint report quoting sources. However, the Finance Act 2024 significantly reduced the scope of indexation benefits. Since July 23, 2024, most asset classes no longer qualify for inflation adjustment using CII. Despite this change, resident individuals and Hindu Undivided Families (HUFs) selling land or buildings acquired before that cut-off date will continue to have a choice — either pay long-term capital gains tax at a flat 12.5 per cent without indexation, or opt for a 20 per cent rate with indexation. For these cases, the updated CII will still be applicable and useful in reducing the tax burden. While the increase in the index value from 363 to 376 represents a modest rise of 3.3 per cent, it still provides some cushion against inflation for applicable transactions.
Mint
3 days ago
- Business
- Mint
CBDT raises cost inflation index to ease capital gains tax burden
New Delhi: The Central Board of Direct Taxes (CBDT) has revised a key metric used to calculate inflation-adjusted purchase price of assets, enabling sellers to claim greater tax relief on asset sales. An official notification showed that the cost inflation index (CII), used to neutralize the impact of inflation on asset prices, has been raised to 376 from the earlier 363. A higher index boosts the inflation-adjusted purchase price of an asset, thereby reducing the taxable capital gains. Capital gain is calculated as the difference between the sale price and the indexed purchase price, also factoring in the cost of improvements. The revised index applies to the current financial year (FY26) and the corresponding assessment year 2026-27 and beyond. The assessment year refers to the period in which income earned during the previous financial year is assessed and tax returns are filed. The rationale is that long-term capital gains (LTCG) on assets such as land and buildings should apply only to real profits, excluding gains purely due to inflation. However, the scope of indexation benefits has been narrowed. The Finance Act of 2024 restructured capital gains tax provisions as part of the government's broader push to simplify the tax system. Under the new rules, indexation benefits are broadly available for assets sold before 23 July 2024. A grandfathering clause allows resident individuals and Hindu Undivided Families (HUFs) to continue claiming indexation even on sales made after this date, provided the asset was acquired before 23 July 2024. In such cases, they can opt to pay LTCG tax at 20% with indexation, rather than the new flat 12.5% rate without indexation. This option, however, is not available to non-resident Indians, companies, or limited liability partnerships. The annual revision of CII enables taxpayers to adjust their capital gains for inflation more accurately every year and it is a key mechanism that brings fairness and efficiency to India's capital gains tax regime, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm. Historically, CII was used in case of long-term capital gain for assets such as land, building, patents, gold, securities etc, Maheshwari said. The concept of indexation using CII was removed in Finance Act 2024 and post 23 July 2024, none of the assets are eligible for CII benefit, Maheshwari added. 'However, a choice was provided to taxpayers in case of sale of land and building which was acquired prior to 23 July 2024. In that case, taxpayers have option to pay tax at 12.5% without indexation or 20% with indexation. Hence, revised CII of 376 is useful for taxpayers who will sell the land and building pertaining to period before July 23, 2024,' explained Maheshwari. This year's notification has come later than usual, diverging from the typical May-June schedule. It follows the delayed release of income tax return forms for FY 2024–25, reflecting a broader slowdown in the tax compliance calendar, said Rajat Mohan, senior partner at AMRG & Associates. With a modest 3.3% rise over last year's CII of 363, the new index offers only partial relief against inflation in long-term capital gains taxation, Mohan added. 'However, the delay may affect early tax planning, audit preparation, and advance tax estimation, highlighting the need for greater administrative predictability going forward,' said Mohan.
