Central Board of Direct Taxes (CDBT) has recently notified the Cost Inflation Index (CII) for FY 2020-21.
Cost Inflation Index for Financial Year 2020-21
Central Board of Direct Taxes (CDBT) has notified the Income Tax Cost Inflation Index for FY 2020-21 or AY 2021-22 at 301.
Read the CBDT Notification.
Now, we understand the concept of Cost Inflation Index.
What is the Cost Inflation Index?
It is an index that is used to calculate a national increase in the value of assets due to inflation.
By the Ministry of Finance, Cost Inflation Index CII for the FY i.e. Financial Year 2020-21 has been notified. In a notified year FY 2020-21 has been set to 301 whereas, in previous finance year CII was set to 289. CII notification is set to 301 dated on June 12, CII number is used to compute the inflation-adjusted purchasing cost of assets for calculating the LTCG on when it planned to be sold. Where LTCG is an Lng Term Capital Gain/ (LTCL)Long Term Capital Loss these both the things are important to calculate which have been sold in FY 2020-21. According to the Financial Ministry notification, it shall have come in a force with effect from 1st April 2020.
Calculating Cost of Asset with Cost Inflation Index
The formula to calculate Inflation-Adjusted Cost of asset is below:
(CII of the year of sale/CII for the year you purchase) * Actual Cost price.
We can understand this with the help of an illustration.
Suppose you purchase a Car for 20 lakh in the year 2008-09 and you sold it for ₹50 lakh in FY 2020. The Inflation Adjusted cost and LTCG will be calculated as:
Inflation-Adjusted Cost : (289/137) * ₹20 Lakh = ₹42.18Lakh (Approx).
LTCG : ₹50Lakh – 42.18Lakh= ₹7.8 Lakh (Approx)
Importantly, CBDT has also notified that the income tax return filing forms of AY 2020-21:- ITR1, ITR2, ITR3, ITR4, ITR5, ITR5, ITR6, and, ITR7 for filing the date by 30th November. The due return date of income tax to files return is extended from March 31 to 30th November 2020.
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