Key Takeaways
- The Cost Inflation Index (CII) for FY 2025-26 is 376, notified by CBDT via Notification No. 70/2025 dated 1 July 2025.
- CII adjusts the purchase price of long-term capital assets for inflation, reducing taxable capital gains on sale.
- Indexed Cost of Acquisition = (Original Cost x CII of year of sale) / (CII of year of purchase or FY 2001-02, whichever is later).
- Post-Budget 2024 (from 23 July 2024), LTCG on all assets is taxed at 12.5% without indexation. However, resident individuals and HUFs selling land or building acquired before 23 July 2024 can choose the lower of 12.5% without indexation or 20% with indexation.
What is the Cost Inflation Index for FY 2025-26? The CBDT has notified the Cost Inflation Index for FY 2025-26 (AY 2026-27) as 376 via Notification No. 70/2025 dated 1 July 2025. CII is notified under Section 48, Explanation (V) of the Income Tax Act, 1961. The base year is FY 2001-02 (CII = 100). CII for FY 2026-27 (Tax Year 2026-27) has since been notified as 384 (Notification No. 85/2026 dated 15 July 2026).
What Is Cost Inflation Index (CII)?
The Cost Inflation Index is a number published every year by the Central Board of Direct Taxes (CBDT) under Section 48 of the Income Tax Act, 1961. It measures how much prices have risen since the base year FY 2001-02.
When you sell a long-term capital asset (property, gold, unlisted shares, debt mutual funds), you pay tax on the profit. Without CII, your entire nominal gain would be taxable, including the portion that simply reflects inflation. CII lets you adjust your purchase price upward to account for inflation, so you pay tax only on the real gain.
How CBDT files CII each year: The index equals 75% of the average rise in the Consumer Price Index for Urban India (CPI-Urban) for the immediately preceding financial year (Section 48, Explanation (V), Income Tax Act, 1961). This means the government uses three-quarters of actual urban inflation, not the full figure.
Complete CII Table: FY 2001-02 to FY 2026-27
The base year is FY 2001-02 with CII = 100. All subsequent values are relative to this base.
| Financial year | CII | Financial year | CII |
|---|---|---|---|
| 2001-02 | 100 | 2014-15 | 240 |
| 2002-03 | 105 | 2015-16 | 254 |
| 2003-04 | 109 | 2016-17 | 264 |
| 2004-05 | 113 | 2017-18 | 272 |
| 2005-06 | 117 | 2018-19 | 280 |
| 2006-07 | 122 | 2019-20 | 289 |
| 2007-08 | 129 | 2020-21 | 301 |
| 2008-09 | 137 | 2021-22 | 317 |
| 2009-10 | 148 | 2022-23 | 331 |
| 2010-11 | 167 | 2023-24 | 348 |
| 2011-12 | 184 | 2024-25 | 363 |
| 2012-13 | 200 | 2025-26 | 376 |
| 2013-14 | 220 | 2026-27 | 384 |
(Source: CBDT notifications under Section 48, Explanation (v), Income Tax Act, 1961. FY 2025-26 value from Notification No. 70/2025; FY 2026-27 value from Notification No. 85/2026 under Section 72(8)(a) of the Income-tax Act, 2025.)
How to Calculate Indexed Cost of Acquisition
The formula for computing the indexed cost of acquisition is straightforward:
Indexed Cost of Acquisition = (Cost of Acquisition x CII of year of transfer) / (CII of year of acquisition or FY 2001-02, whichever is later)
If you also spent money on improvements, the indexed cost of improvement is calculated separately using the CII of the year of improvement.
Worked Example: Property Sale
Facts: Mr. Sharma bought a plot of land in April 2010 (FY 2010-11) for Rs 25,00,000. He sells it in January 2026 (FY 2025-26) for Rs 85,00,000.
Step 1: Identify the CII values.
- CII for FY 2010-11 (year of acquisition): 167
- CII for FY 2025-26 (year of transfer): 376
Step 2: Compute indexed cost of acquisition.
- Indexed Cost = (25,00,000 x 376) / 167 = Rs 56,28,743 (rounded)
Step 3: Compute long-term capital gain.
- Sale price: Rs 85,00,000
- Indexed cost: Rs 56,28,743
- LTCG with indexation = Rs 28,71,257
Step 4 (without indexation):
- Sale price: Rs 85,00,000
- Original cost: Rs 25,00,000
- LTCG without indexation = Rs 60,00,000
The difference is significant. With indexation, the taxable gain drops from Rs 60 lakh to Rs 28.71 lakh. Whether Mr. Sharma can use indexation depends on the Budget 2024 rules explained below.
Worked Example: Gold Jewellery
Facts: Mrs. Patel bought gold jewellery in March 2005 (FY 2004-05) for Rs 5,00,000. She sells it in December 2025 (FY 2025-26) for Rs 28,00,000. This example shows how the formula works; because the sale is after 23 July 2024 and gold is not land or building, she cannot actually use indexation (see below).
Step 1: CII values.
- CII for FY 2004-05: 113
- CII for FY 2025-26: 376
Step 2: Indexed cost = (5,00,000 x 376) / 113 = Rs 16,63,717 (rounded)
Step 3: LTCG with indexation = 28,00,000 - 16,63,717 = Rs 11,36,283
Without indexation: LTCG = 28,00,000 - 5,00,000 = Rs 23,00,000, taxed at 12.5% = Rs 2,87,500 plus cess. This is the figure that actually applies to her sale.
Budget 2024 Changed Indexation Rules: What Applies Now
The Finance (No. 2) Act, 2024, effective from 23 July 2024, made a fundamental change to how long-term capital gains are taxed.
The New Default Rule (from 23 July 2024)
All long-term capital gains under Section 112 are now taxed at a flat 12.5% without indexation. This replaces the earlier rule of 20% with indexation. The change applies to all non-equity long-term assets: property, gold, unlisted shares, debt instruments, and bonds.
The Grandfathering Exception: Land and Building
For resident individuals and Hindu Undivided Families (HUFs) who sell land, building, or both that was acquired before 23 July 2024, there is a choice. The taxpayer can compute tax both ways and pay the lower amount:
- Option A: 12.5% on LTCG computed without indexation, OR
- Option B: 20% on LTCG computed with indexation (using the CII table)
Whichever option produces the lower tax liability applies.
(Source: proviso to Section 112(1) inserted by the Finance (No. 2) Act, 2024; Section 197(3) of the Income-tax Act, 2025 from Tax Year 2026-27.)
Who Gets the Choice and Who Does Not
| Seller and asset | Indexation option? |
|---|---|
| Resident individual or HUF, land or building acquired before 23 July 2024 | Yes: lower of 12.5% without or 20% with indexation |
| Resident individual or HUF, land or building acquired on or after 23 July 2024 | No: 12.5% without indexation |
| Non-resident individual, company, firm, LLP | No |
| Gold, unlisted shares, bonds and other non-equity assets (any seller) | No |
Applying the Choice: Continuing Mr. Sharma's Example
Mr. Sharma is a resident individual. His plot was bought in April 2010 (before 23 July 2024). He qualifies for the grandfathering choice.
- Option A (12.5% without indexation): Tax = 12.5% of Rs 60,00,000 = Rs 7,50,000
- Option B (20% with indexation): Tax = 20% of Rs 28,71,257 = Rs 5,74,251
Option B is lower. Mr. Sharma pays Rs 5,74,251 in LTCG tax using the indexation benefit. This saves him Rs 1,75,749 compared to the flat-rate option.
When does Option A win? If the property was bought recently (say 2020 or later) and has appreciated sharply, the indexed cost may not reduce the gain enough to offset the higher 20% rate. Always compute both before choosing.
Assets Acquired Before FY 2001-02
If you purchased a capital asset before 1 April 2001, Section 55(2)(b) lets you take either the actual cost or the fair market value (FMV) of the asset as on 1 April 2001 as your cost of acquisition, at your option. Indexation then starts from the base year (FY 2001-02 = 100) as the denominator.
For land or building, the FMV as on 1 April 2001 cannot exceed the stamp duty value on that date, where available. Support it with a registered valuer's report.
Common Mistakes to Avoid
1. Using the wrong CII year. The CII for the year of transfer is the financial year in which the sale deed is executed, not the year you received the sale proceeds. Similarly, the year of acquisition is the FY in which you acquired the asset, not the registration date if it differs.
2. Forgetting that the base year is 2001-02, not 1981. The base year was shifted from FY 1981-82 to FY 2001-02 by the Finance Act 2017. If you are computing gains on an asset bought before 2001, use the FMV as on 1 April 2001 and CII 100 as the base. Old CII values (prior to 2001-02) are no longer relevant for indexation.
3. Applying indexation when the new 12.5% rate applies. If you sold an asset after 23 July 2024 and you are not a resident individual or HUF selling pre-23 July 2024 land or building, you cannot use indexation. The 12.5% flat rate without indexation is the only option.
4. Mixing up FY and AY. CII 376 is for FY 2025-26. If you sold an asset in FY 2025-26, you use CII 376. The corresponding assessment year is AY 2026-27, which is when you file your ITR, not the CII reference year.
How Tax Garden Helps
Computing indexed cost of acquisition, choosing between 12.5% and 20% rates, and correctly filling Schedule CG in ITR 2 or ITR 3 requires precision. One wrong CII value changes the entire tax liability. Tax Garden handles the computation end to end: we verify the acquisition date, apply the correct CII, compute both options where the grandfathering rule applies, and file the return with accurate capital gains. See our tax compliance plans.
Sources: CBDT Notification No. 70/2025 dated 1 July 2025 (CII for FY 2025-26 = 376) and the official CII table (incometaxindia.gov.in); Section 48, Explanation (V) of the Income Tax Act 1961 (indexation formula); base year 2001-02 set by the Finance Act 2017; the Finance (No. 2) Act 2024 effective 23 July 2024 (LTCG shift from 20% with indexation to 12.5% without indexation, and the grandfathering option for resident individuals and HUFs on land or building acquired before that date under the proviso to Section 112(1)); CBDT Notification No. 85/2026 dated 15 July 2026 (CII for FY 2026-27 = 384); and Section 55(2)(b)(ii) (fair market value rule for pre-2001 assets).
