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The Central Board of Direct Taxes (CBDT) has specified a value for the cost inflation index for 2015-16.
A cost inflation index helps reduce the inflationary gains, thereby reducing the long-term capital gains tax payout for a taxpayer.
Last year, the index was ‘1024’ and this year it is ‘1081’.
This would mean that there has been a 5.57 per cent rise in the cost inflation index for 2015-16.
In 2014-15, the cost inflation index grew 9.05 per cent. This index is useful for income-tax assesses in the computation of tax on long-term capital gains (for indexation purposes)
Currently, the income-tax law allows long-term capital gains to be computed after adjusting for inflation.
The cost of acquisition as well as the cost of improvement is adjusted for inflation between the date of purchase and date of sale (through the cost inflation index) before the long-term capital gain is ascertained.
The income-tax law requires the CBDT to specify the cost inflation index for a financial year after factoring in 75 per cent of average rise in consumer price index for urban non-manual employees for the immediately preceding financial year.
Last year, the CBDT had specified the cost inflation index in early June. This year it has been done in end July.
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