Tax

Indexation

Adjusting the purchase cost for inflation using the Cost Inflation Index (CII) to reduce taxable capital gain — removed for new acquisitions post-July 2024.

Definition

Indexation adjusts the purchase cost of a capital asset for inflation using the Cost Inflation Index (CII) published by CBDT. The indexed cost reduces the taxable gain. Pre-July 2024, this was the standard mechanism for LTCG on property, gold, and debt mutual funds.

Finance Act 2024 removed indexation from LTCG on property and gold sold on/after 23 July 2024 — replacing the 20%-with-indexation rate with a flat 12.5%-without-indexation. A transitional option exists for assets bought before 23 July 2024 to use whichever method gives lower tax.

Formula

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

Example

Bought property ₹40L in FY 2010-11 (CII 167), sold FY 2024-25 (CII 363). Indexed cost = ₹40L × 363/167 = ₹86.9L. If 20%-with-indexation option chosen on ₹1.6cr sale: tax = 20% × (1.6cr − 86.9L) = ₹14.6L. Without indexation at 12.5%: tax = ₹15L.

Calculators that use this

Capital Gains

Calculate STCG and LTCG on equity, debt MFs, property, and gold using post-July 2024 rules. Auto-classifies short vs long term by holding period.

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Related terms

More Tax terms

See all 30 glossary terms or read our Methodology for how we source these definitions.