The Central Board of Direct Taxes (CBDT) has increased the Cost Inflation Index (CII) for the financial year 2026-27 to 384, up from 376 in FY2025-26. The revised index will apply from April 1 and will be used to calculate long-term capital gains (LTCG) tax for eligible taxpayers.
The increase of 2.12% means people selling certain long-term assets such as land, property, trademarks and patents may end up paying lower long-term capital gains (LTCG) tax.
"This notification shall apply to the tax year 2026-27 on and from the 1st day of April 2026 and subsequent tax years," the notification issued on July 15 under Section 72(8)(a) of the Income-tax Act, 2025 read.
The CII is a number notified every year by the CBDT to adjust the purchase price of certain long-term assets for inflation. Since the purchase price becomes higher after this adjustment, the taxable profit from selling the asset becomes lower.
Also Read | E20 Fuel Dispute: Consumer Court Orders Compensation For Alleged Engine Damage
What Are The New Rules?
From July 23, 2024, the government removed the indexation benefit for most capital assets. This means people buying and selling most assets after this date can no longer use the Cost Inflation Index to reduce their tax. Instead, Finance Minister Nirmala Sitharaman announced a reduction in Long Term Capital Gains (LTCG) Tax on property sales from 20% to a flat 12.5%.
However, some taxpayers can still claim indexation. For example, resident individuals and Hindu Undivided Families (HUFs) selling land or buildings purchased before July 23, 2024, can choose the older capital gains tax system with indexation if they are eligible and if it results in a lower tax bill.
For these taxpayers, the FY2026-27 Cost Inflation Index of 384 can be used to calculate the inflation-adjusted purchase price of the asset. This means they can choose between the new 12.5% rate without indexation or the old 20% rate with indexation, whichever gives them lower tax.
Understanding With An Example:
For example, you bought a property in FY2014-15 for Rs 50 lakh and sold it for Rs 1 crore in FY26, here's how the maths works in this case:
Purchase year: FY15 - CII = 240
Sale year: FY26 - CII = 384
Purchase price: Rs 50,00,000
Sale price: Rs 1,00,00,000
Indexed Cost of Acquisition = Original Purchase Price × (CII of year of sale ÷ CII of year of purchase)
As a result, Indexed Cost of Acquisition = Rs 50,00,000 × (384 ÷ 240) = Rs 50,00,000 × 1.6 = Rs 80,00,000
Purchase cost without indexation benefit: Rs 50 lakh
Cost considered with indexation benefit = Rs 80,00,000
Taxable capital gains without indexation benefit: Rs 50 lakh
Taxable gains with benefits: Rs 20,00,000 (Rs 1 crore - Rs 80 lakh)
Hence, long-term capital gains tax without indexation benefit: 12.5% × Rs 50,00,000 = Rs 6,25,000
Tax with indexation benefit: 20% × Rs 20,00,000 = Rs 4,00,000
This shows that investors who opt for the indexation benefit (where eligible) may be able to significantly reduce their tax liability. To calculate your taxable gains, you can check CII for corresponding year here.
Also Read | Laser Power & Infra Shares List At 25% Premium On Stock Market Debut
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.