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CBDT Notifies Cost of Inflation Index (CII) for 2020-21

cbdt-notifies-cost-of-inflation-index-cii-for-2020-21

CBDT Notifies Cost of Inflation Index (CII) for 2020-21: CBDT vide Notification No. 32/2020 dated 12.06.2020 notified the Cost of Inflation Index (CII) FY 2020-21 (AY 2021-22) for the purpose of computation of Capital Gains.


CBDT every year notifies the CII data for each financial year. In this process, the Cost Inflation Index or CII for the Financial Year 2020-21 is notified as 301. The same was at 289 in the last year 2019-20, an increase of 4.15 per cent over the preceding financial year.


The importance of CII or Cost Inflation Index is that this number is used to arrive at the inflation-adjusted cost price of assets transferred for the purpose of computing long-term capital gains.


The existing provisions of section 55 of the Act provide that for computation of capital gains, an assessee shall be allowed a deduction for the cost of acquisition of the asset and also cost of improvement, if any. However, for computing capital gains in respect of an asset acquired before 1st April 2001, the assessee has been allowed an option of either to take the fair market value of the asset as on 1st April, 2001 or the actual cost of the asset as cost of acquisition.


Earlier, the Finance Act, 2017 had changed the base year for computing indexation from FY 1981-82 to FY 2001-02. This was done because the base year for computation of capital gains was more than three decades old and assessees were facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable property acquired before 01.04.1981 due to non-availability of relevant information for computation of the fair market value of such asset as on 01.04.1981.


In order to revise the base year for computation of capital gains, Section 55 of the Act was amended by Finance Act, 2017 so as to provide that the cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as fair market value as on 1st April, 2001 and the cost of improvement shall include only those capital expenses which are incurred after 01.04.2001.


Consequential amendment was also made in section 48 so as to align the provisions relating to the cost inflation index to the proposed base year.


This new base year of FY 2001-02 is applicable from 1st April, 2018 or assessment year 2018-19 and subsequent years. 


Section 55 is further amended by Finance Act, 2020 (from the assessment year 2021-22 and onwards) to restrict the fair market value of an asset, being land or building or both, on 1st April, 2001 to the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available.


Cost Inflation Index (CII) for the base financial year 2001-02 is 100. Hence, the cost of the assets purchased on or before FY 2001-02 is increased by more than 3 times in 20 years of time.


NOTIFIED COST INFLATION INDEX UNDER SECTION 48, EXPLANATION (V)

As per Notification No. S.O. 1879(E) [No. 32/2020 (F.No. 370142/17/2020-TPL)], Dated 12-6-2020, following table should be used for the Cost Inflation Index-


Sl. No.

Financial Year

Cost Inflation Index

1

2001-02

100

2

2002-03

105

3

2003-04

109

4

2004-05

113

5

2005-06

117

6

2006-07

122

7

2007-08

129

8

2008-09

137

9

2009-10

148

10

2010-11

167

11

2011-12

184

12

2012-13

200

13

2013-14

220

14

2014-15

240

15

2015-16

254

16

2016-17

264

17

2017-18

272

18

2018-19

280

19

2019-20

289

20

2020-21

301


Cost Inflation Index or CII is used to calculate inflation-adjusted cost only for those assets where indexation benefit is allowed. 


CII value cannot be used to compute long term capital gains on equity mutual funds as they are taxed at a flat rate of 10 percent without indexation benefit. 


However, for other assets, CII value can be used.


How Cost Inflation Index Value is used


The formula to calculate the indexed cost price of the asset transferred is given below:

 

ICP=(CIIt/CIIp) x CP

 

Where, 

ICP stands for Indexed Cost Price of the asset transferred

CIIt stands for CII value of the financial year in which asset is transferred

CIIp stands for CII value of the financial year in which asset was acquired

CP stands for the Cost Price of the asset transferred


Illustration:


Mr. Rakesh purchased a house property on 12.11.2007 for Rs 25 lakh which is sold on 10.06.2020 for Rs 60 lakh. Compute the long term capital gain.


Computation of Long Term Capital Gain:


Full Value of consideration

(Sale Price)

60,00,000

Less: Indexed Cost of acquisition

301/129 x 25 Lakh

58,33,333

Long Term Capital Gain

1,66,667


One must remember that indexation with CII values is allowed only for long term capital assets and not for short term capital capital assets.


In case a person has income for capital gains, he cannot use ITR-1 for reporting the income from capital gains in his income tax return. He can use ITR-2 (if no business income) or ITR-3 (having business income).


Read more on Which ITR forms one should use


The indexed cost of acquisition in case of long term assets is allowed for adjustment of inflation which helps in reducing the income from capital gains and thus the long term capital gains tax.




Read the full text of the Notification No. 32/2020 dated 12.06.2020


MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)


NOTIFICATION


New Delhi, the 12th June, 2020


Income-Tax


S.O. 1879(E).—In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, published in the Gazette of India, Extraordinary, vide number S.O. 1790(E), dated the 5th June, 2017, namely:—


2. In the said notification, in the Table, after serial number 19, the following serial number and entries relating thereto, shall be inserted, namely:—



Sl. No.

Financial Year

Cost Inflation Index

(1)

(2)

(3)

“20

2020-21

301”.


3. This notification shall come into force with effect from 1st day of April, 2021 and shall accordingly apply to the assessment year 2021-22 and subsequent years.


[Notification No. 32/2020/F.No. 370142/17/2020-TPL]

ANKIT JAIN, Under Secy. (Tax Policy and Legislation)



Download Copy of Notification No. 32/2020 dated 12.06.2020 in pdf format.


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2 Comments

  1. Mistakes sir.. wherever 2020-21 is to be written you have wrote 2021-22 or 2021-21

    ReplyDelete