Cost Inflation Index (CII) FY 2025–26: The Number That Can Cut Your Capital Gains Tax

Inflation affects everyone. Prices of goods and services rise over time, and the same ₹100 buys fewer things than it did a few years ago. This declining purchasing power directly impacts long-term investments such as property, gold, or bonds. That’s why the Cost Inflation Index (CII) was introduced by the Government of India — to measure inflation year by year & adjust the purchase price of capital assets accordingly.

However, after the Union Budget 2024 announcement (effective July 23, 2024), the landscape of indexation benefits has changed. Let’s understand what CII means, how it works, the latest CII table for FY 2025-26, and practical examples that will help you see its application.

What is Cost Inflation Index (CII)?

The Cost Inflation Index is a tool notified by the Central Government to calculate inflation-adjusted gains on the sale or transfer of long-term capital assets such as:

• Land or building
• Property
• Shares and securities
• Trademarks, patents, etc.

When you sell an asset after holding it for years, the selling price is naturally much higher than the purchase price. Without indexation, your capital gains tax liability increases sharply. By applying CII, the purchase price is “inflated” in line with rising prices, which reduces taxable profits & lowers the long-term capital gains (LTCG) tax."

Major Change After Budget 2024

The indexation benefit has been discontinued for most assets after July 23, 2024. This means:

• For land/buildings acquired before July 23, 2024 → Taxpayers can choose either:
  • 12.5% tax without indexation, or
  • 20% tax with indexation.
• For land/buildings acquired on or after July 23, 2024 → Only 12.5% tax without indexation applies.

For all other assets purchased after this date, indexation is no longer available. This move increases the tax burden on investors as capital gains are now calculated on actual cost rather than inflation-adjusted cost.

Also Read: Section 8 of Income Tax Act – The Clause That Defines Your Income Sources

Cost Inflation Index Table (2001–02 to 2025–26)

Here is the official CII table notified by the government:

Concept of Base Year in CII

• The base year is the starting point for indexation. It is fixed at 2001-02 with CII = 100.
• For assets purchased before April 1, 2001, the purchase price is taken as the higher of actual cost or Fair Market Value (FMV as on April 1, 2001).
• This helps taxpayers fairly calculate long-term gains without struggling to obtain valuation reports for very old properties (which was a problem when the base year was 1981).

How is CII Calculated?

The Central Government calculates CII as 75% of the average rise in the Consumer Price Index (CPI-Urban) of the previous year.

Formula for Indexed Cost of Acquisition:

👉 Indexed Cost = Original Purchase Price × (CII of Sale Year ÷ CII of Purchase Year)

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Points to Note

• For inherited property, CII of the year in which the previous owner acquired the asset is considered.
• Costs incurred before April 1, 2001, are ignored.
• Indexation is not allowed for bonds & debentures (except capital-indexation bonds or Sovereign Gold Bonds).
• From April 1, 2023, indexation was also removed for debt mutual funds.
• From July 23, 2024, indexation benefit is no longer available for any asset, except as explained earlier for old property."

Practical Examples

Example 1: Flat Purchased in 2001

Rahul bought a flat in FY 2001-02 for ₹10,00,000. He sold it in FY 2017-18.

• CII of 2001-02 = 100
• CII of 2017-18 = 272

Indexed Cost = 10,00,000 × (272 ÷ 100) = ₹27,20,000

Example 2: Property Purchased Before Base Year

Shivani bought a property in 1995 for ₹2,00,000. FMV as of April 1, 2001, was ₹3,20,000. She sold it in FY 2016-17.

• Chosen cost = ₹3,20,000 (higher of FMV and actual cost)
• CII of 2001-02 = 100
• CII of 2016-17 = 264

Indexed Cost = 3,20,000 × (264 ÷ 100) = ₹8,44,800

Example 3: Shares

Gita bought shares worth ₹1,00,000 in March 2015 and sold them in April 2020.

• CII of 2014-15 = 240
• CII of 2020-21 = 301

Indexed Cost = 1,00,000 × (301 ÷ 240) = ₹1,25,416

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Example 4: Sovereign Gold Bonds (SGBs)

Harish purchased SGBs in 2015 for ₹2,00,000 and redeemed them in Jan 2021 for ₹2,55,000.

• CII of 2015-16 = 254
• CII of 2020-21 = 301

Indexed Cost = 2,00,000 × (301 ÷ 254) = ₹2,37,007

Example 5: House Purchased in 2012

Suman purchased a house in FY 2012-13 for ₹20,00,000 & sold it in FY 2023-24.

• CII of 2012-13 = 200
• CII of 2023-24 = 348

Indexed Cost = 20,00,000 × (348 ÷ 200) = ₹34,80,000

Example 6: LTCG With vs Without Indexation (as per Budget 2024)

Property purchased in June 2001 for ₹2,00,000, sold in FY 2024-25 for ₹10,00,000.

• With Indexation:
  Indexed Cost = 2,00,000 × (363 ÷ 100) = ₹7,26,000
  LTCG = 10,00,000 – 7,26,000 = ₹2,74,000
  Tax @ 20% = ₹54,800
• Without Indexation:
  LTCG = 10,00,000 – 2,00,000 = ₹8,00,000
  Tax @ 12.5% = ₹1,00,000

👉 Clearly, the new rule could increase tax liability depending on the case.

Also Read: The Tax Refund Trap That Could Cost You 200% More Than You Claimed

Conclusion

The Cost Inflation Index (CII) for FY 2025-26 is 376. While indexation was earlier a crucial tool to lower LTCG tax, the discontinuation of indexation benefits from July 23, 2024 has completely changed the tax planning landscape.

Investors must now carefully evaluate whether to sell assets acquired before this date with or without indexation & plan future investments considering that 12.5% tax without indexation will now be the default.

Proper tax planning, awareness of rules, and consultation with a qualified CA are more important than ever.