The Central Board of Direct Taxes (CBDT) in month of June 2013has specified a value for the cost inflation index for 2013-14.
A brief insight into Cost Inflation Index as declared by CBDT
In year 2012-13 the index was 852, and this year it is 939 which signify that there has been a 10.2 per cent rise in the cost inflation index for 2013-14.
Use of Cost Inflation Index
A cost inflation index helps in reducing the inflationary gains, thereby reducing the long-term capital gains tax payout for a taxpayer. The index is useful for income-tax assesses in the computation of tax on long-term capital gains (for indexation purposes). In the previous year (2011-12), the cost inflation index increased 8.5 per cent.
As per the income-tax law it is required by the CBDT to state the cost inflation index for a financial year after factoring out 75 per cent of average rise in consumer price index for urban non-manual employees for the immediately preceding financial year. The model of indexation has been conserved even under the proposed direct taxes code, which may come into force from 1 April 2014.
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