The purchasing power of money (the amount of products that one unit of money can buy) decreases when the price of goods rises over time. Due to inflation, if two units of products could be purchased for Rs 100 today, just one unit could be purchased for Rs 100 tomorrow. The Cost Inflation Index (CII) is a tool for estimating inflation-related increases in the cost of goods and assets over time.
What is India’s cost inflation index?
When the price of a commodity rises over time, the purchasing power of money decreases. For example, if you can buy 5 products for Rs. 500 now, you may only be able to buy 4 items tomorrow due to inflation. The cost inflation index analyzes the projected annual increase in the cost of goods and assets due to inflation. It is determined by the central government and published in the official gazette to be used to measure inflation. The index is defined in Section 48 of the Indian Income Tax Act, 1961, as notified by the government each year.
The Cost Inflation Index is a measure of inflation that is used to determine long-term capital gains from the sale of assets. The profit you make from selling an asset, such as real estate, jewelry, or shares, is known as capital gains. Indexation refers to the process of adjusting the cost price of a capital asset to account for inflation using the cost inflation index number.
How can you figure out a property’s cost inflation index?
It is a measure of inflation used in tax legislation to calculate long-term capital gains on the sale of assets. The index is defined under Section 48 of the Income-Tax Act as what is notified by the Central Government every year, taking into account 75% of the average rise in the consumer price index (CPI) for urban non-manual employees for the previous year. As a result, if the price of a capital asset has risen in lockstep with the base price, the cost allowed to sell an asset and replace it, even after indexation, will be less than the price payable for a new asset. However, the price rise for many capital assets is less than the market price, and in many situations, it is more.
What role does the Cost Inflation Index (CII) play in calculating capital gains? As you may be aware, capital gain occurs when the net sale consideration of a capital asset exceeds the cost. Because “cost of acquisition” is a historical figure, the concept of indexed cost allows the taxpayer to account for inflation. As a result, capital gains are taxed at a lesser rate than if historical cost was factored into the calculations.
(Index for the year of sale/Index for the year of purchase) x cost is the formula for calculating indexed cost.
For example, if a home acquired for Rs 20 lakh in 1991-92 was sold for Rs 80 lakh in 2009-10, the indexed cost would be (582/199) x 20 = Rs 58.49 lakh. Long-term capital gains will be Rs 21.51, or Rs 80 lakh less Rs 58.49 lakh.
How is the cost index determined?
The CI is the ratio of an airplane operation’s time-related cost to the cost of fuel. The CI’s value represents the proportional impact of fuel expenditures on overall trip costs against time-related direct operating costs.
Figure 1 depicts the range of allowed cost indices (see next page). The flight crew enters the CI determined by the firm into the FMC’s control display unit (CDU). The FMC then calculates economy (ECON) climb, cruise, and descent speeds using this value and other performance factors.
When the CI is set to zero, the maximum range airspeed and minimal trip fuel are achieved for all models. The cost of time is ignored in this speed schedule.
The FMC, on the other hand, employs a minimum time speed schedule if the maximum value for CI is provided. The maximum flight envelope speeds are specified in this speed schedule, which disregards the cost of fuel (see fig. 2, on next page).
What does it cost to index?
Because the government levies a tax on such transactions, the owner would be responsible for a significant tax bill. To avoid paying a huge tax bill, the asset’s sale price can be indexed to reflect the asset’s current value, taking inflation into account. As a result, the profit from the sale would be lesser, lowering the amount of capital gains to be paid.
As a result, indexation aids in reflecting the asset’s actual value at current market rates while also accounting for the degradation of value due to inflation.
The purchase price is referred to as the indexed cost of acquisition when selling an item. As a result, the cost inflation index (CII) is the indexed price at which the asset is purchased. The government determines the CII for a given year and releases it for tax purposes before the accounting year closes.
What is the cost inflation index for the 2020-21 fiscal year?
In a statement dated June 15, 2021, the Central Board of Direct Taxes (CBDT) announced the cost inflation index (CII) for FY 2021-22 as 317. CII was notified as 301 for the prior fiscal year, FY 2020-21. The CII is used to compute an asset’s inflation-adjusted cost price.
How can I save money on my house selling tax?
If you are unable to build a house immediately after receiving a capital gain (but intend to do so in the near future), you can deposit the profit in any public sector bank under the Capital Gains Account Scheme (CGAS). If you do this, you’ll have three years to get your ducks in a row and start building your property. If this is not the case, the capital gain will be taxed as a long-term capital gain (at 20 percent plus a 3 percent cess).
There are two types of accounts available under the CGAS scheme: savings deposit accounts (also known as Type-A accounts) and term deposit accounts (called Type-B accounts). There are two types of interest in Type-B accounts: cumulative and non-cumulative. You can move money between the two accounts by paying the fixed fees, but you can only withdraw money from Type-A accounts if you sign a statement stating that the funds will be used to build a home within 60 days. Any money that have not been used must be re-deposited.
If you’ve sold land and want to save money on taxes, you can invest in certain financial assets to protect your hard-earned capital gains from being taxed under Section 54EC of the Income Tax Act of 1961. You must invest in notified bonds within 6 months after the transfer to do so.
The Rural Electrification Corporation and NHAI, in particular, are the issuers of the bonds (the National Highways Authority of India). If you transfer or accept a loan against these bonds within three years, you will be assessed capital gains tax. Keep in mind that per financial year, you can only deposit Rs.50,000 in these bonds.
Unless it is within the bounds of (or up to 8 kilometers away from) a municipality, municipal corporation, town committee, cantonment board, or any other civic entity with a population of (or over) 10,000, the sale of farm land is not subject to capital gains tax.
FAQs on Capital Gain Tax on Sale of Property
Yes, NRIs who sell their property in India would have to pay capital gains tax. The amount of tax due will be determined by whether the gain is long or short term.
Short-term capital gains will be taxed according to the income tax slab rate. You will have to pay an applicable capital gain tax based on your annual income.
Long-term capital gains tax, on the other hand, will be 20.8 percent with indexation.
Some of the methods for reducing capital gains tax on your property include:
- Setting off all of your capital gain losses is one of the most effective ways to reduce capital gains tax. You can put your capital gain profits against your losses, but your losses must trace back to a previous date. You can also match your short-term capital losses to short-term gains and your long-term losses to long-term gains. You can deduct your long-term losses from your long-term gains if you carry them forward for eight years. You must, however, file your taxes on time before the deadline.
- Investing in a Capital Gains Account Scheme is one option to reduce your capital gains tax (CGAS). This plan is designed for those who are unable to purchase a new home before filing their tax returns. The investment period in this scheme is three years. This permits you to save money in order to buy a home of your own. However, you must enroll in this program before filing your income tax returns. It’s important to know that just a few Indian banks are authorized to allow their customers to invest in CGAS.
- Investing in bonds within six months after selling a home and getting the benefits is one approach to reduce your capital gains tax. Section 54EC of the Indian Income Tax Act, 1961 allows you to claim a tax deduction for bond investments. However, you must commit to investing in these bonds for at least three years. It is recommended that you do not invest for more than three years because you will not receive any interest and will not be able to transfer the bonds to anybody else.
How does property indexing work?
A property seller can use indexation to lower their capital gains tax liability. For this aim, we’ll look at how to compute a property’s indexed cost.
Is it better to have a higher cost index?
Cost Index (CI) is not a new concept; it has been used in some form by most Flight Management Systems for years.
The lower the CI, the greater the “priority” that the machinery focuses on fuel conservation. Lower climb speeds (both indicated and mach), lower cruise speeds, a generally higher cruise altitude, a delayed descent, and a slower descent mach/speed will all come from low cost indexes. The greater the CI, the more the opposite will happen.
A given cost index will result in a specific still air True Airspeed at altitude; however, it is common for the FMS to adjust the mach number (MN) by.01 when the head wind or tail wind components exceed a programmed threshold value – ie, the airplane will slow down with a tail wind and speed up with a headwind (automatically) to reduce fuel burn. More advanced flight planning applications will display this change leg by leg and will include the speed change in the ATC flight plan.
A MN is assigned to oceanic flights as part of the clearance. In this instance, the crew MUST fly the mach allocated, and the automatic speed adjustment should be disabled or overridden to preserve time based separation.
On the CI that they employ for a particular type or in a specific context, there is a lot of difference amongst operators. For example, in the A320, one airline often utilizes a CI of around 9, resulting in a climb speed of roughly 290, a cruise speed of around.76, and a descent speed of around 260. If the plane is late, the crew may utilize a CI of 50 or higher, resulting in speeds of 320,.79, and 330 for the same phases.
The air traffic controller cannot assume that all aircraft of the same type would act in the same manner during any given phase of flight because the CI varies from operator to operator and may also vary between flights of the same operator. If he or she wants them to, they must be given a specific speed.
Is the cost of living the same as inflation?
The Most Important Takeaways Inflation is defined as a rise in the cost of goods and services. Alternatively, the dollar’s purchasing power is eroding. The shift in the cost of fundamental requirements of life, such as food, shelter, and healthcare, is measured by cost-of-living.