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Consider the following statements regarding the Cost Inflation Index (CII):
- CII number helps an individual to ascertain the inflation-adjusted current price of an asset.
- It helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding the Cost Inflation Index (...
**Explanation:**
The Cost Inflation Index (CII) is a measure used in India to calculate the inflation-adjusted current price of an asset. It is used to calculate the capital gains from the transfer or sale of capital assets after taking inflation into account.
**Statement 1: CII number helps an individual to ascertain the inflation-adjusted current price of an asset.**
This statement is correct. The CII number is used to adjust the purchase price of an asset for inflation. It is calculated by the Central Government and is updated every financial year. By using the CII number, an individual can calculate the inflation-adjusted current price of an asset, which is then used to determine the capital gains tax liability.
**Statement 2: It helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.**
This statement is also correct. When calculating capital gains, the CII number is used to adjust the purchase price of the asset for inflation. The formula for calculating capital gains is:
Capital Gains = Selling Price - Cost of Acquisition
Here, the Cost of Acquisition is adjusted for inflation using the CII number. By factoring in inflation, the capital gains tax liability is calculated more accurately.
Therefore, both statements are correct. The CII number is used to ascertain the inflation-adjusted current price of an asset and to calculate capital gains from the transfer or sale of capital assets after taking inflation into account.
The Cost Inflation Index (CII) is a measure used in India to calculate the inflation-adjusted current price of an asset. It is used to calculate the capital gains from the transfer or sale of capital assets after taking inflation into account.
**Statement 1: CII number helps an individual to ascertain the inflation-adjusted current price of an asset.**
This statement is correct. The CII number is used to adjust the purchase price of an asset for inflation. It is calculated by the Central Government and is updated every financial year. By using the CII number, an individual can calculate the inflation-adjusted current price of an asset, which is then used to determine the capital gains tax liability.
**Statement 2: It helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.**
This statement is also correct. When calculating capital gains, the CII number is used to adjust the purchase price of the asset for inflation. The formula for calculating capital gains is:
Capital Gains = Selling Price - Cost of Acquisition
Here, the Cost of Acquisition is adjusted for inflation using the CII number. By factoring in inflation, the capital gains tax liability is calculated more accurately.
Therefore, both statements are correct. The CII number is used to ascertain the inflation-adjusted current price of an asset and to calculate capital gains from the transfer or sale of capital assets after taking inflation into account.
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Community Answer
Consider the following statements regarding the Cost Inflation Index (...
Recently, The Income Tax Department has notified the Cost Inflation Index for the current fiscal beginning April 2023.
About Cost Inflation Index (CII):
- CII number is used to adjust the purchase price of assets on the basis of inflation.
- The CII number helps an individual to ascertain the inflation-adjusted current price of an asset.
- This helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.
- Capital gain refers to the profit acquired from the sale/transfer of any capital assets, including land, property, stocks, shares, trademarks, patents, etc.
- It helps taxpayers offset the impact of inflation as the difference between the purchase and sale price could be substantial due to rising prices.
- The application of the Cost Inflation Index for capital gain adjusts the purchase price of assets based on their sale price, resulting in smaller earnings and a lower tax amount.
- Till FY 2022-23 (ended on March 31, 2023), the CII number was used to calculate the long-term capital gains from non-equity mutual fund schemes.
- But from FY 2023-24, the indexation benefit on long-term capital gains from non-equity mutual fund schemes has been removed.
- A taxpayer will continue to use the CII number to calculate long-term capital gains from house property, land, and building in the event of a sale.
- What is the formula to calculate inflation-adjusted purchase price?
- CII number is used to calculate the inflation-adjusted price of a long-term asset. To calculate the inflation-adjusted price, the CII is used in the following manner,
- Inflation-adjusted price = (CII of the sale year/CII of the purchase year) * Actual price of the asset.
Hence both statements are correct.
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Consider the following statements regarding the Cost Inflation Index (CII): CII number helps an individual to ascertain the inflation-adjusted current price of an asset. It helps in calculating capital gains from a transfer or sale of capital assets after taking inflation into account.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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