Ch.8 · Capital Gains Tax on Mutual Funds · medium
What is the 'cost inflation index' (CII) and its relevance to mutual fund taxation?
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EXPLANATION
The Cost Inflation Index (CII) is notified by the Income Tax Department annually. It was used to calculate indexed cost of acquisition = Actual Cost × (CII of sale year / CII of purchase year). This inflation-adjusted cost reduced taxable LTCG for debt funds. For example, a bond bought for ₹1 lakh when CII was 280 and sold when CII is 348 would have indexed cost = ₹1 lakh × 348/280 = ₹1.24 lakh. Since April 2023, this benefit no longer applies to debt funds.
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