Govt raises cost inflation index to 376, boosts tax relief on asset sales
As per the latest notification, the CII has been revised to 376 for the financial year 2025-26 (FY26), up from 363 in the previous year.
The cost inflation index helps adjust the purchase price of an asset to account for inflation.
This adjustment reduces the taxable capital gain, which is calculated as the difference between the sale price and the inflation-adjusted purchase price.
A higher index means a higher adjusted cost, which, in turn, lowers the tax burden on sellers.
This revised index will apply for FY26 and the assessment year 2026-27, when tax returns for income earned in FY26 will be filed.
The purpose behind using this method is to ensure that capital gains tax is charged only on real profits and not on gains caused by inflation.
However, there have been changes to the overall rules regarding indexation. As part of the government's tax simplification efforts, the Finance Act of 2024 introduced new rules for capital gains tax.
Under the updated rules, indexation benefits will mainly be available for assets sold before July 23, 2024.
For sales made after this date, resident individuals and Hindu Undivided Families (HUFs) can still claim indexation benefits -- only if the asset was acquired before July 23, 2024.
In such cases, they can choose to pay a 20 per cent long-term capital gains tax with indexation, instead of the new flat 12.5 per cent rate without indexation.
However, this option is not available to non-resident Indians (NRIs), companies, or limited liability partnerships (LLPs), who must follow the new flat-rate system.
The revision in the inflation index comes as a relief for many taxpayers looking to sell long-term assets like land, property, or shares, especially those who are still eligible for indexation under the grandfathering clause.
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