The Finance Ministry has notified the cost inflation index (CII) number for the Financial Year (FY) 2020-21. In a notification dated June 12 (32/2020), the finance ministry stated that CII for FY 2020-21 has been set as 301. For the previous financial year, it was 289.
The index is useful for income-tax payers in the computation of tax on long-term capital gains. A cost inflation index helps reduce the inflationary gains, thereby reducing the long-term capital gains tax payout for the taxpayer. Currently, the income-tax law allows long-term capital gains to be computed after adjusting for inflation. The Central Government notifies this number for each financial year. This CII helps to factor in the time value of money whenever the assessee transfers/sells his long term capital asset.
For computing the inflation-adjusted LTCG/LTCL for assets sold between April 1, 2020 and March 31, 2021, the CII number to be used is for FY 2020-21 which is 301.
The formula to calculate inflation-adjusted cost price is: (CII of the year of sale/CII for the year of purchase) * Actual cost price
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Last year, the CBDT had specified the cost inflation index in September. This year it has been done in June.