CBDT raises cost inflation index to ease capital gains tax burden
An official notification showed that the cost inflation index (CII), used to neutralize the impact of inflation on asset prices, has been raised to 376 from the earlier 363.
A higher index boosts the inflation-adjusted purchase price of an asset, thereby reducing the taxable capital gains. Capital gain is calculated as the difference between the sale price and the indexed purchase price, also factoring in the cost of improvements.
The revised index applies to the current financial year (FY26) and the corresponding assessment year 2026-27 and beyond. The assessment year refers to the period in which income earned during the previous financial year is assessed and tax returns are filed.
The rationale is that long-term capital gains (LTCG) on assets such as land and buildings should apply only to real profits, excluding gains purely due to inflation.
However, the scope of indexation benefits has been narrowed. The Finance Act of 2024 restructured capital gains tax provisions as part of the government's broader push to simplify the tax system.
Under the new rules, indexation benefits are broadly available for assets sold before 23 July 2024. A grandfathering clause allows resident individuals and Hindu Undivided Families (HUFs) to continue claiming indexation even on sales made after this date, provided the asset was acquired before 23 July 2024. In such cases, they can opt to pay LTCG tax at 20% with indexation, rather than the new flat 12.5% rate without indexation.
This option, however, is not available to non-resident Indians, companies, or limited liability partnerships.
The annual revision of CII enables taxpayers to adjust their capital gains for inflation more accurately every year and it is a key mechanism that brings fairness and efficiency to India's capital gains tax regime, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.
Historically, CII was used in case of long-term capital gain for assets such as land, building, patents, gold, securities etc, Maheshwari said.
The concept of indexation using CII was removed in Finance Act 2024 and post 23 July 2024, none of the assets are eligible for CII benefit, Maheshwari added.
'However, a choice was provided to taxpayers in case of sale of land and building which was acquired prior to 23 July 2024. In that case, taxpayers have option to pay tax at 12.5% without indexation or 20% with indexation. Hence, revised CII of 376 is useful for taxpayers who will sell the land and building pertaining to period before July 23, 2024,' explained Maheshwari.
This year's notification has come later than usual, diverging from the typical May-June schedule. It follows the delayed release of income tax return forms for FY 2024–25, reflecting a broader slowdown in the tax compliance calendar, said Rajat Mohan, senior partner at AMRG & Associates.
With a modest 3.3% rise over last year's CII of 363, the new index offers only partial relief against inflation in long-term capital gains taxation, Mohan added. 'However, the delay may affect early tax planning, audit preparation, and advance tax estimation, highlighting the need for greater administrative predictability going forward,' said Mohan.
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