Part of Capital gains and property

Cost inflation index and indexation

Indexation uses the government's Cost Inflation Index (CII) to uplift the purchase cost of a long-term asset for inflation before you compute the capital gain, which reduces the taxable gain. The Finance Act 2024 changed this fundamentally: from 23 July 2024, most long-term gains are taxed at a flat 12.5% without indexation. So for most assets the CII no longer applies. The main place it still matters is resident-held immovable property bought before 23 July 2024, where you can choose the old method.

Last reviewed: 29 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

How it works

For resident-held land or buildings acquired before 23 July 2024, you may choose the lower of two computations: the new flat 12.5% without indexation, or the old 20% with indexation using the CII. For everything else, listed equity, mutual funds, and assets acquired on or after 23 July 2024, the flat 12.5% applies with no indexation. The CII table is still published annually and is used only for that grandfathered immovable-property choice and for computing the indexed cost where the old method is elected.

From 23 July 2024 most long-term capital gains are taxed at a flat 12.5% without indexation; resident-held immovable property bought before that date can elect the old 20%-with-indexation method if lower. (Income-tax Act 1961 s.112 + FA2024 amendment (Income-tax Act 2025 s.74))

The cost inflation index is notified annually and used to compute the indexed cost of acquisition where indexation applies. (Income-tax Act 1961 s.48 + s.55 (Income-tax Act 2025 ss.72/90))

Common pitfalls

Assuming indexation still applies to all long-term assets, it was removed for most by FA2024
Forgetting the grandfathering choice on resident immovable property bought before 23 July 2024
Applying indexation to listed equity or mutual funds, which never qualified for it
Using the wrong year's CII when the old method is genuinely available

Worked example

Harish — Nagpur, MH

individual selling a plot bought in 2015 (2026-27)

Harish sells a residential plot in 2026 that he bought in 2015 for Rs 30 lakh, for Rs 80 lakh. Because he is a resident and bought before 23 July 2024, he can choose between the two methods.

New method: flat 12.5% on the gain of Rs 50 lakh (Rs 80 lakh minus Rs 30 lakh) = Rs 6.25 lakh. Old method: index the Rs 30 lakh cost up by the CII (say to roughly Rs 48 lakh), giving an indexed gain of about Rs 32 lakh taxed at 20% = about Rs 6.4 lakh. He picks the lower of the two, the new flat 12.5% method here, saving a little. The choice exists only because the plot is resident-held and pre-23-July-2024.