CBDT notifies Cost Inflation Index for FY2026-27 at 384. What it means | Finance News
The CBDT issues the CII every financial year. For the last financial year (FY26), it was 376.
The increase in the CII to 384 for FY27 reflects the government’s estimate of inflation over the past year. A higher index means the inflation-adjusted cost of acquiring an asset will be higher than it was in FY26. This means that taxpayers eligible to claim indexation benefits will have a higher inflation-adjusted purchase cost of their assets, resulting in lower taxable capital gains on their sale.
What is Cost Inflation Index?
Cost Inflation Index, or CII, is a tool used to measure the estimated yearly increase in an asset’s price due to inflation. Defined under Section 48 of the Income Tax Act, 1961, it assigns an index value to each financial year to account for the rise in prices over time.
To calculate the CII, the government assigns a benchmark year with an index value of 100, against which the index values of subsequent years are calculated. The current benchmark year is 2001-02.
As the index is used to adjust the purchase price of eligible assets for inflation, a higher CII generally results in a higher indexed cost of acquisition, thereby lowering taxable capital gains. Simply put, a lower CII indicates a smaller inflation adjustment, leading to a lower indexed cost and potentially higher taxable gains.
The significance of CII
The CII is primarily used to calculate long-term capital gains tax on the transfer or sale of capital assets. Capital gains refer to the profit earned from selling or transferring assets such as land, property, stocks, shares, trademarks and patents. Indexation adjusts an asset’s purchase price for inflation, ensuring that tax is levied only on the inflation-adjusted gain rather than the entire increase in its value.
