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New cost inflation hike by CBDT brings relief for property sellers: Experts
The Income Tax department has notified the Cost Inflation Index (CII) for the financial year 2025-26 at 376, up from 363 last year.
While this may sound like a any other ordinary number, it is of great significance for taxpayers selling long-term assets, particularly real estate acquired before July 23, 2024.
Here's how experts break it down.
CII: A cushion against inflation
'The Cost Inflation Index (CII) of 376 is not just a number, it's a powerful mechanism to adjust the purchase price of long-term assets for inflation,' says Niyati Shah, chartered accountant and head of personal tax at 1 Finance.
For property owners, the higher CII allows for a substantially increased indexed cost of acquisition, effectively lowering taxable capital gains.
Shah explains, 'This is especially impactful for those selling high-value real estate and legacy assets. The higher the CII, the more it cushions sellers from inflation-led erosion of asset value and helps preserve post-tax returns.'
Who can claim indexation?
Post the Finance Act 2024, indexation benefits are now preserved for assets bought before July 23, 2024, and only certain taxpayers can claim them. As Pawan Kumar Agarwal, managing director of Nklusive, points out, 'Individuals and HUFs, being normal residents of India, are still eligible to claim indexation benefits, but only for land and building purchased before July 23, 2024, and held for over two years.'
Assets like gold, stocks, or any other capital asset no longer qualify for indexation benefits, even if bought before this cut-off.
12.5 per cent Flat Tax vs 20 per cent with Indexation: Which is better?
A key decision for taxpayers now is whether to pay 20 per cent LTCG tax with indexation or opt for a 12.5 per cent flat tax without it.
Shah advises, 'Indexation meaningfully increases the cost of acquisition, especially for long-held assets. For older properties, the 20 per cent rate with indexation often results in lower effective tax.'
To illustrate, she says, 'A flat bought in June 2010 for Rs 30 lakh and sold in October 2025 for Rs 1 crore would attract Rs 8.75 lakh tax without indexation. But with the latest CII of 376, the inflation-adjusted cost becomes Rs 67.5 lakh, and tax reduces to Rs 6.49 lakh, a saving of over Rs 2.25 lakh.'
Experts urge computation before choosing
'Taxpayers should compute both options and choose the one with lower liability,' suggests Agarwal.
'For long-held assets, indexation remains advantageous in most cases. But for assets with modest gains, the 12.5 per cent flat rate could be more efficient.'
Vivek Jalan, partner at Tax Connect Advisory Services LLP, echoes this, adding that for assets like real estate held for decades, 'indexation often wipes out the LTCG exposure entirely or reduces it significantly.'
Documentation is key
Experts also caution taxpayers about compliance. Abhishek Singh, director at V3 Infrasol, highlights common mistakes.
'Using the wrong CII year, ignoring improvement costs, or misreporting acquisition year can lead to higher taxes or scrutiny. Retain all original deeds, receipts for improvements, and calculate carefully.'
Real estate market adapts to tax changes
From a property market perspective, Manjunath HR, managing partner at Aakruthi Properties, observes, 'Many sellers rushed to offload properties before the July 2024 deadline to retain indexation benefits. But even now, understanding tax implications is critical for optimising returns, especially in premium and luxury housing segments.'
Key takeaway
If you own property acquired before July 23, 2024, the new CII value of 376 offers meaningful relief in computing long-term capital gains. But deciding between the old and new tax regimes isn't straightforward. As Shah summarises, 'It's not a one-size-fits-all decision. Do the math or consult a tax advisor to pick the most tax-efficient route.'
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