Cost Inflation Index FY26-27: How Much Tax You Save on Capital Gains

If you sold a plot of land last year, cashed out some old gold, or are planning to book profit on an ancestral property, one number can quietly decide whether you pay ₹2 lakh in tax or ₹20,000. That number is the Cost Inflation Index. Most people file their return without ever understanding it, and end up either overpaying or, worse, under-reporting and inviting a notice.

Here's the surprising part: after the July 2024 Budget, indexation was scrapped for most assets — but not all. Property bought before 23 July 2024 still gets a choice, and certain unlisted assets, debt instruments and older acquisitions continue to enjoy indexation benefits. That means the cost inflation index FY26-27 still matters for a large chunk of Indian taxpayers, and knowing how to use it can legitimately shrink your long-term capital gains tax bill.

In this guide I'll explain what the CII actually is, how it's applied step by step, walk you through real ₹ examples on property and gold, and show you exactly when indexation still helps versus the flat 12.5% rate. No jargon, no fluff — just the arithmetic you can use before you sign the sale deed.

Key Takeaways

• The Cost Inflation Index adjusts your purchase price for inflation, so you're taxed only on real gains — not the part eaten up by rising prices.
• Indexation was removed for most assets from 23 July 2024, but property acquired before that date lets you choose between 20% with indexation and 12.5% without.
• For old, low-cost assets held for many years, indexation usually wins — sometimes cutting the taxable gain to near zero.
• The formula is simple: Indexed Cost = Purchase Cost × (CII of sale year ÷ CII of purchase year).
• Always compare both methods before filing — the cheaper option can differ by lakhs depending on how long you held the asset.
• Gold, unlisted shares and older acquisitions may still qualify, so don't assume indexation is dead.

What is the Cost Inflation Index and why does it exist?

The Cost Inflation Index (CII) is a number notified every year by the Central Board of Direct Taxes (CBDT). Its whole job is to measure how much prices have risen since a base year, so that when you sell a long-held asset, you aren't taxed on inflation you never actually pocketed.

Think about it. If you bought a flat for ₹20 lakh in 2005 and sold it for ₹80 lakh in 2024, your "profit" looks like ₹60 lakh. But ₹20 lakh in 2005 had far more buying power than ₹20 lakh today. A big slice of that ₹60 lakh isn't real gain — it's just the rupee losing value. Indexation corrects for exactly this by inflating your original cost.

The base year is currently 2001-02, which carries an index value of 100. Every subsequent year gets a higher number reflecting cumulative inflation. If you want to see how the rupee has decayed over time in a broader sense, our Inflation Calculator gives you a feel for the same principle applied to everyday money.

How the CII is used in the formula

The core formula is refreshingly simple:

Indexed Cost of Acquisition = Original Cost × (CII of year of sale ÷ CII of year of purchase)

You then subtract this indexed cost from your sale price to arrive at the long-term capital gain (LTCG). Tax is charged on this reduced figure, not on the raw difference between buy and sell price.

Cost inflation index FY26-27: what's the notified number and who still benefits?

The CBDT notifies the CII near the start of each financial year. For context, the CII values have moved steadily upward — for example, FY 2023-24 was 348 and FY 2024-25 was 363. The value applicable to the cost inflation index FY26-27 continues this rising trend as the index tracks the government's inflation measure. When you compute gains for an asset sold in that financial year, you use the notified figure for the sale year in the numerator.

Important context after Budget 2024: From 23 July 2024, the government removed indexation for most long-term assets and introduced a uniform 12.5% LTCG rate (without indexation). But there's a crucial carve-out:

• Immovable property (land/building) bought before 23 July 2024: resident individuals and HUFs can choose the lower of two calculations — 20% tax with indexation, or 12.5% without indexation.
• Property bought on or after 23 July 2024: only the 12.5% flat rate applies, no indexation.
• Gold, jewellery and other capital assets: for sales after 23 July 2024, the flat 12.5% (post 24-month holding) generally applies without indexation — but for the transition period and older sales, indexation still governs.

So the CII hasn't become irrelevant. For anyone selling an older property or computing gains on assets acquired years ago, it remains central to getting the tax right.

How to calculate indexed cost step by step

Let me break the process into a walkthrough you can follow without any other resource.

1. Identify the year of purchase and note the CII for that financial year. If the asset was bought before 1 April 2001, you can substitute the Fair Market Value (FMV) as on 1 April 2001 and use CII of 100.
2. Identify the year of sale and note the CII for that year.
3. Add cost of improvements — any major renovation, boundary wall, or extension — and index each improvement using the CII of the year it was incurred.
4. Apply the formula: multiply the cost by (sale-year CII ÷ purchase-year CII).
5. Subtract the total indexed cost (acquisition + improvements) and eligible transfer expenses (brokerage, stamp duty on sale, legal fees) from the sale consideration.
6. The result is your indexed LTCG. Apply 20% tax (plus applicable cess and surcharge) if you're using the indexation route.
7. Compare this with the 12.5%-without-indexation figure and pick whichever gives lower tax (for eligible pre-July-2024 property).

Pro tip: Keep documentary proof for every improvement cost you claim — contractor bills, bank transfers, municipal approvals. The Assessing Officer routinely disallows "improvement" claims that rest only on a self-declared figure. A ₹5 lakh renovation you can't prove is a ₹5 lakh deduction you'll lose.

Worked example: selling a property bought in 2005

Let's take a concrete case. Meera bought a residential flat in Pune in FY 2005-06 for ₹22,00,000. In FY 2011-12 she spent ₹4,00,000 on a major renovation. She sells the flat for ₹95,00,000, paying ₹1,50,000 in brokerage.

Using illustrative CII values — 2005-06 = 117, 2011-12 = 184, and the sale-year index we'll take as approximately 376 — here's the math:

• Indexed cost of purchase = ₹22,00,000 × (376 ÷ 117) = ₹22,00,000 × 3.214 = ₹70,70,940
• Indexed cost of improvement = ₹4,00,000 × (376 ÷ 184) = ₹4,00,000 × 2.043 = ₹8,17,391
• Total indexed cost = ₹70,70,940 + ₹8,17,391 = ₹78,88,331
• Transfer expenses = ₹1,50,000
• LTCG with indexation = ₹95,00,000 − ₹78,88,331 − ₹1,50,000 = ₹14,61,669
• Tax at 20% ≈ ₹2,92,334 (plus 4% cess ≈ ₹3,04,027)

Now the alternative — 12.5% without indexation:

• Gain = ₹95,00,000 − ₹22,00,000 − ₹4,00,000 − ₹1,50,000 = ₹67,50,000
• Tax at 12.5% ≈ ₹8,43,750 (plus cess ≈ ₹8,77,500)

The verdict is dramatic. Indexation saves Meera roughly ₹5.7 lakh here, because her flat was held for nearly two decades and inflation inflated her cost heavily. For old assets, the 20%-with-indexation route very often wins.

When does the flat 12.5% rate beat indexation?

Indexation isn't always the winner. The shorter your holding period and the sharper your price appreciation, the more the flat 12.5% rate makes sense — because inflation hasn't had enough years to inflate your cost meaningfully.

Consider Arjun, who bought a plot in FY 2021-22 for ₹40,00,000 and sold it for ₹65,00,000 in a later year (still eligible for the choice because it was pre-July 2024).

Method	Taxable Gain	Tax Rate	Approx. Tax (excl. cess)
20% with indexation	~₹21,50,000	20%	₹4,30,000
12.5% without indexation	₹25,00,000	12.5%	₹3,12,500

Here the flat rate wins by over ₹1 lakh, because Arjun held the plot only a few years — indexation barely moved his cost. The lesson: always run both numbers. The right answer depends on holding period, gain size and the specific CII values involved.

How the CII applies to gold and old assets

Gold has long been an indexation favourite because families hold it for decades. For gold sold before 23 July 2024, physical gold held over 36 months qualified for LTCG with indexation at 20%. Post that date, the flat 12.5% regime applies after a 24-month holding for most such assets.

Say your mother bought gold jewellery in FY 2002-03 for ₹1,50,000 and it's worth ₹9,00,000 today. Under the old indexation math, the inflated cost could climb well past ₹5 lakh, sharply trimming the taxable gain. Under the flat regime, you'd pay 12.5% on ₹7.5 lakh instead. Which is better depends entirely on when you sell and how the transition rules treat your holding.

The broader point for gold, unlisted shares acquired years ago, and inherited assets: the acquisition date and sale date jointly decide your regime. Don't assume. Pull out the purchase records first.

Common mistake: Many people forget that for inherited or gifted assets, the "cost" and "date of acquisition" are those of the previous owner, not the date you received it. This dramatically changes your CII base year — and can turn a large taxable gain into a modest one once you index from the original 2003 or 2008 purchase instead of last year.

How to reduce or defer your LTCG tax legally

Getting the CII right is step one. Step two is using the exemptions the Income Tax Act allows:

• Section 54: Reinvest LTCG from a residential house into another residential house (within the prescribed timelines) to claim exemption.
• Section 54F: For gains from non-residential assets (like a plot or gold), invest the net sale consideration in a residential house to claim exemption.
• Section 54EC: Invest up to ₹50 lakh of the gain in specified bonds (NHAI, REC) within 6 months to defer tax; these carry a 5-year lock-in.
• Capital Gains Account Scheme: If you can't reinvest before the filing due date, park the gain in a CGAS account with a bank to preserve the exemption.

Timing matters enormously here. If you're planning a property sale, model your after-tax proceeds first, then decide how much to reinvest. Our Income Tax Calculator helps you estimate your overall liability, and if you're deciding whether to prepay a home loan with the sale proceeds instead, the Home Loan Prepayment Calculator shows the interest you'd save.

A quick reference table: which regime applies to your asset?

Asset & Acquisition Date	Holding for LTCG	Indexation Available?	Applicable Tax
Property bought before 23 Jul 2024	> 24 months	Yes (optional)	Lower of 20% (indexed) or 12.5%
Property bought on/after 23 Jul 2024	> 24 months	No	12.5% flat
Physical gold (sold after Jul 2024)	> 24 months	No (post-transition)	12.5% flat
Unlisted shares	> 24 months	Depends on date	12.5% (post-Jul 2024)
Listed equity / equity MF	> 12 months	No	12.5% above ₹1.25 L exemption

Always cross-check the current year's notified CII and the latest CBDT circulars before filing, since transition rules for the 2024-25 period have specific nuances.

Frequently Asked Questions

What is the cost inflation index for FY 2026-27?

The CBDT notifies the CII near the start of each financial year, and the figure for the cost inflation index FY26-27 continues the steadily rising trend seen in prior years (FY 2023-24 was 348, FY 2024-25 was 363). Always use the officially notified number for the year of sale in your indexation formula.

Is indexation still allowed after Budget 2024?

Yes, but only in limited cases. Residential and other immovable property acquired before 23 July 2024 lets resident individuals and HUFs choose between 20% with indexation and 12.5% without. Most other assets moved to a flat 12.5% rate without indexation.

How do I decide between 20% with indexation and 12.5% without?

Calculate the tax both ways and pick the lower one. As a rule of thumb, older assets held for a decade or more usually benefit from indexation, while recently bought assets with sharp appreciation often do better under the flat 12.5% rate.

What CII do I use for property bought before 2001?

For assets acquired before 1 April 2001, you can take the Fair Market Value as on 1 April 2001 (backed by a registered valuer's report) as your cost, and use a base CII of 100. This often gives a much higher starting cost and lower taxable gain.

Does indexation apply to gold jewellery?

For gold sold before 23 July 2024 and held over 36 months, indexation at 20% applied. For sales after that date, the flat 12.5% rate (after 24 months) generally governs, so the benefit depends on your exact sale date and the transition rules.

How can I save tax on the capital gains I've calculated?

Reinvest under Sections 54, 54F or 54EC, or park the gain in a Capital Gains Account Scheme before your ITR due date. Each has strict timelines and lock-ins, so plan the reinvestment before you sell rather than after.

Do I still need to report the sale if my gain is exempt?

Yes. Capital asset transactions must be reported in your ITR even when the gain is fully exempt after reinvestment. Skipping disclosure can trigger a notice — see our guide on ITR filing deadlines and late fees to stay compliant.

Final word: run the numbers before you sign

The cost inflation index FY26-27 remains a genuinely useful tool for anyone holding older property, gold or unlisted assets — even after Budget 2024 trimmed indexation for newer purchases. The single biggest mistake I see is people accepting a broker's or buyer's rough tax estimate without running both calculation methods themselves. That laziness can cost lakhs.

Before you finalise any sale, do three things: confirm your correct acquisition date (especially for inherited assets), gather proof of every improvement cost, and compute tax under both the indexation and flat-rate routes. Then decide on reinvestment options to defer or eliminate the liability entirely.

Start by estimating your overall tax position with our Income Tax Calculator, browse the full set of free financial calculators to plan reinvestments, and if you want to understand more of the compliance picture, read our pieces on reporting foreign assets in your ITR and senior citizen income tax for AY 2026-27. Have a specific case you're unsure about? Reach out to us — and always consult a qualified professional before filing.

Image credit: Scrabble Series Income Tax — ccPixs.com, via flickr (BY 2.0), sourced from Openverse.