Let’s face it — inflation is a thief taking away your purchasing power while you sleep. But hey, when it comes to capital gains, you get to fight back — legally! Thanks to the Cost Inflation Index (CII), the Income Tax Department lets you pretend your old property or gold purchase was actually way more expensive than it was. Why? Because inflation made it feel that way anyway. So whether you bought a house in 1995 or some gold in 2012 thinking you were just “investing”, CII makes sure you don’t get taxed on imaginary gains. Discontinuation of benefit of Indexation or CII with effect from 23rd July 2024 led to mixed reactions from taxpayers, despite a small relief / exception by the government in its continued use. This blog details each and every aspect of Indexation or CII. Read More to Know More
Statutory Backing by which Indexation Factor or Cost Inflation Index (CII) is notified
Cost Inflation Index (CII) is notified under explanation (v) to Section 48 of the Income Tax Act, which provides that Central Government may by notification in the Official Gazette, specify the CII for a previous year by considering 75% of average rise in the CPI(U) (Consumer Price Index (urban)) for the immediately preceding previous year to previous year for which CII is being notified.
Purpose of Indexation or CII (Cost Inflation Index)
The purpose if to adjust the cost of acquisition/improvement of a capital asset to reflect inflation. Rs. 1 Lac in 2001-02 would not have been same to Rs. 1 Lac in FY 2025-26 due to inflation, therefore, to make them comparable, CII works as the necessary factor for adjustment. Without adjusting for inflation, one might be taxed on illusory gains (price rise due to inflation, not actual profit), therefore, CII ensures only real gains are taxed.
How Indexation or CII (Cost Inflation Index) is Used?
The CII is used only in case of long term assets or transactions.
Indexed Cost of Acquisition = Cost of Acquisition × (CII in year of sale ÷ CII in year of acquisition)
Indexed Cost of Improvement = Cost of Improvement × (CII in year of sale ÷ CII in year of improvement
Long-Term Capital Gain = Sale Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)
Base Year for Indexation or CII (Cost Inflation Index)
The base year was changed from 1981-82 to 2001-02 (indexed at 100) from FY 2017-18 onwards which means that the FY 2001-02 would have a CII of 100.
Indexation or CII (Cost Inflation Index) Table
| S. No. | Financial Year (FY) | Assessment Year (AY) | CII |
|---|---|---|---|
| 1 | 2001–02 | 2002–03 | 100 |
| 2 | 2002–03 | 2003–04 | 105 |
| 3 | 2003–04 | 2004–05 | 109 |
| 4 | 2004–05 | 2005–06 | 113 |
| 5 | 2005–06 | 2006–07 | 117 |
| 6 | 2006–07 | 2007–08 | 122 |
| 7 | 2007–08 | 2008–09 | 129 |
| 8 | 2008–09 | 2009–10 | 137 |
| 9 | 2009–10 | 2010–11 | 148 |
| 10 | 2010–11 | 2011–12 | 167 |
| 11 | 2011–12 | 2012–13 | 184 |
| 12 | 2012–13 | 2013–14 | 200 |
| 13 | 2013–14 | 2014–15 | 220 |
| 14 | 2014–15 | 2015–16 | 240 |
| 15 | 2015–16 | 2016–17 | 254 |
| 16 | 2016–17 | 2017–18 | 264 |
| 17 | 2017–18 | 2018–19 | 272 |
| 18 | 2018–19 | 2019–20 | 280 |
| 19 | 2019–20 | 2020–21 | 289 |
| 20 | 2020–21 | 2021–22 | 301 |
| 21 | 2021–22 | 2022–23 | 317 |
| 22 | 2022–23 | 2023–24 | 331 |
| 23 | 2023–24 | 2024–25 | 348 |
| 24 | 2024–25 | 2025–26 | 363 |
| 25 | 2025–26 (latest) | 2026–27 | 381 (estimated) |
Illustrations (Practical Use Cases) for Indexation
Here are 5 practical examples of how the Cost Inflation Index (CII) is used to compute long-term capital gains (LTCG). These cover a variety of scenarios including property purchased before FY 2001–02.
Example 1: Property Purchased Before FY 2001–02 (e.g. in 1995)
Scenario:
- Purchased in: 1995 (before base year 2001–02)
- FMV as on 01.04.2001: ₹10,00,000 (as per valuation report)
- Sold in: FY 2024–25 for ₹60,00,000
- CII for 2001–02: 100
- CII for 2024–25: 363
Indexed Cost of Acquisition:
₹10,00,000 × (363 ÷ 100) = ₹36,30,000
Capital Gain:
₹60,00,000 – ₹36,30,000 = ₹23,70,000
Note: Assessee can substitute FMV as on 01.04.2001 and apply CII from 2001–02 onwards (as base year was reset from 1981–82 to 2001–02).
Example 2: Flat Purchased in FY 2005–06
- Purchase price: ₹15,00,000
- CII of 2005–06: 117
- Sold in FY 2024–25 for ₹70,00,000
- CII for 2024–25: 363
Indexed Cost:
₹15,00,000 × (363 ÷ 117) = ₹46,53,846
Capital Gain:
₹70,00,000 – ₹46,53,846 = ₹23,46,154
Example 3: Gold Bought in FY 2012–13
- Cost: ₹5,00,000
- CII in 2012–13: 200
- Sold in FY 2024–25 for ₹14,00,000
- CII in 2024–25: 363
Indexed Cost:
₹5,00,000 × (363 ÷ 200) = ₹9,07,500
Capital Gain:
₹14,00,000 – ₹9,07,500 = ₹4,92,500
Example 4: Property Improvement in FY 2010–11
- Property bought in FY 2003–04 for ₹12,00,000 (CII: 109)
- Improvement in FY 2010–11: ₹4,00,000 (CII: 167)
- Sold in FY 2024–25 for ₹50,00,000 (CII: 363)
Indexed Cost of Acquisition:
₹12,00,000 × (363 ÷ 109) = ₹39,94,495
Indexed Cost of Improvement:
₹4,00,000 × (363 ÷ 167) = ₹8,69,461
Total Indexed Cost: ₹48,63,956
Capital Gain: ₹50,00,000 – ₹48,63,956 = ₹1,36,044
Example 5: Mutual Fund (Non-Equity Oriented) Bought in FY 2016–17
- Investment: ₹3,00,000
- CII in 2016–17: 264
- Redeemed in FY 2024–25 for ₹6,50,000
- CII in 2024–25: 363
Indexed Cost:
₹3,00,000 × (363 ÷ 264) = ₹4,12,500
Capital Gain:
₹6,50,000 – ₹4,12,500 = ₹2,37,500
Discontinuation of the application of Indexation or CII w.e.f. 23rd July 2024
Yes, the heading is correct!
Reason for Removing the Benefit of Indexation or Discontinuation of CII
The government allegedly discontinued the application of CII to rationalize and simplify the Capital Gains Tax. It did so by making applicable a flat tax rate 12.5% on long-term capital gains and removing the indexation under the second proviso to section 48 on such gains, which was earlier available for property, gold, and other unlisted assets. As per the government’s rationale, this will ease the computation of capital gains for the taxpayer and the tax administration. The same was done with effect from 23.07.2024 (23rd July 2024). Parallel amendment was also done in Section 112 of the Income Tax Act to bring the rate of 12.5% into force for Long Term Capital Gains.
There is a Catch! Indexation or Benefit of Application of CII is still available in some cases #Exception
- Available only to Resident Individuals or HUF
- Available only in relation to land or building or both
- Available only if land or building or both is/are acquired before 23rd July 2024
- Available irrespective of land or building or both, transferred either before or after 23rd July 2024
The above exeption is provided in second provison to section 112(1)(a) which not in so simple manner states that:
Provided further that in the case of transfer of a long-term capital asset, being land or building or both, which is acquired before the 23rd day of July, 2024, where the income-tax computed under item (B) (i.e. at the rate of 12.5%) exceeds the income-tax computed in accordance with the provisions of this Act, as they stood immediately before their amendment by the Finance (No. 2) Act, 2024, such excess shall be ignored.
Due to the above stated exception, the Cost of Inflation Index or CII still holds relevance, though in limited case as stated above
Illustrations with respect to role of 23rd July 2024 in application of Indexation or CII
Case 1: Asset acquired before 23 July 2024, but sold after 23 July 2024 by Resident Individual
Indexation benefit: Available
Tax Option: Lower of
- 20% with indexation
- 12.5% without indexation
Example:
- Property bought: April 2010 for ₹25,00,000
- Sold: October 2024 for ₹1,00,00,000
- Indexed cost (using CII 2024–25 = 363):
(25,00,000×363)/167(25,00,000 × 363) / 167(25,00,000×363)/167 ≈ ₹54,31,137 - LTCG (with indexation): ₹45,68,863 → 20% = ₹9,13,772
- LTCG (without indexation): ₹75,00,000 → 12.5% = ₹9,37,500
- Pay lower tax = ₹9,13,772
Case 2: Asset acquired on or after 23 July 2024, sold later by Resident Individual
Indexation: ❌ Not available
Tax: 12.5% flat on gains
Example:
- Property bought: August 2024 for ₹60,00,000
- Sold: March 2026 for ₹85,00,000
- LTCG = ₹25,00,000 × 12.5% = ₹3,12,500
- Flat rate applies, indexation not allowed
Case 3: Asset acquired before July 2024, sold before July 2024
Old regime applies
Tax: 20% with indexation
No impact of new regime
Case 4: NRI sells property after 23 July 2024 (any acquisition date)
Indexation Not available
Tax: 12.5% flat
- No option to use indexation
- Applies to NRIs, LLPs, companies, etc.
Case 5: Land acquired in 1999, sold in FY 2024–25
Eligible for indexation benefit
Indexed from 2001 (fair market value on 1 Apr 2001)
Still eligible for indexation if sold after 23 July 2024 — if acquired before cut-off and assessee is resident individual/HUF
Table summarizing applicability of Indexation post 23rd July 2024
| Case | Acquisition Date | Sale Date | Assessee Type | Indexation | Tax Rate |
|---|---|---|---|---|---|
| 1 | Before 23 Jul 2024 | After 23 Jul 2024 | Resident Individual | ✅ Optional (Option available only for Land or Building for Both, not for other Assets) | Lower of 20% or 12.5% |
| 2 | After 23 Jul 2024 | Any | Any | ❌ | 12.5% |
| 3 | Before 23 Jul 2024 | Before 23 Jul 2024 | Any | ✅ | 20% (old rule) |
| 4 | Any | After 23 Jul 2024 | NRI/LLP/Company | ❌ | 12.5% |
| 5 | Before 2001 | After 23 Jul 2024 | Resident Individual | ✅ Optional (Option available only for Land or Building for Both, not for other Assets) | Lower of 20% or 12.5% |
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