Cost Inflation Index for FY26-27 notified: Experts explain its tax impact | Personal Finance

The new CII, effective from April 1, 2026, will be used to calculate the inflation-adjusted purchase cost of eligible long-term capital assets. A higher indexed cost reduces taxable capital gains and, in turn, the tax payable. But taxpayers should note that indexation is no longer a blanket benefit and is now restricted largely to certain property transactions.

What is the Cost Inflation Index?

In simple terms, if you bought a property years ago, its purchase cost is increased using the notified CII before calculating capital gains. A higher purchase cost means lower taxable gains and, therefore, reduced tax liability.

For FY2026-27, the CII has been increased to 384. It was 376 in FY2025-26.

Who stands to benefit?

The latest notification will not benefit every taxpayer selling a capital asset.

According to Ritika Nayyar, partner at Singhania & Co., the higher CII will primarily help resident individuals and Hindu Undivided Families (HUFs) selling land or buildings acquired before July 23, 2024.

“The key beneficiaries are resident individuals and HUFs selling land or buildings acquired before July 23, 2024. They can choose between 12.5 per cent tax without indexation or 20 per cent tax with indexation, whichever is lower. The higher CII of 384 increases the indexed cost of acquisition, which can significantly reduce taxable gains for older properties,” Nayyar said.

She added that taxpayers should calculate their tax liability under both methods before filing their income tax return and opt for the one that results in lower tax.

Who will not get the benefit?

The Finance Act, 2024 significantly curtailed the scope of indexation.

Nayyar said taxpayers selling gold, debt mutual funds, unlisted shares and real estate acquired on or after July 23, 2024 generally cannot claim indexation. These assets are taxed at 12.5 per cent without indexation under the revised regime.

She also pointed out that non-resident Indians (NRIs) and corporate taxpayers cannot claim the grandfathered indexation benefit available for eligible immovable property.

Property sellers have two tax options

For eligible resident taxpayers, choosing the correct tax method can make a meaningful difference.

Mrugakshi Joshi, advocate at D.M. Harish & Co. LLP, said resident individuals and HUFs selling land or buildings can compute tax under two methods and choose the lower tax liability.

They can opt for:

• 
  12.5 per cent LTCG tax without indexation, or
• 
  20 per cent LTCG tax with indexation, where the purchase cost is adjusted for inflation.

“This choice is available only to resident individuals and HUFs. Non-residents selling land or building in India are taxed at 12.5 per cent and do not have the option to claim indexation,” Joshi explained.

For instance, if someone purchased a house years ago, applying indexation could substantially increase the property’s acquisition cost after adjusting for inflation. This would reduce the taxable capital gain and could make the 20 per cent tax route more favourable than paying 12.5 per cent without indexation. However, the actual outcome will depend on factors such as the purchase year, acquisition cost and sale price.

One important condition taxpayers should know

While indexation can reduce tax, it cannot be used to create an additional tax advantage.

Joshi cautioned that if applying indexation results in a capital loss on paper, that loss cannot be carried forward or set off against other capital gains.

“In short, taxpayers should compute tax under both methods and choose the lower liability. But an indexed loss does not provide any additional tax benefit,” she said.

Common mistakes while claiming indexation

Experts say taxpayers frequently make avoidable errors while calculating indexed capital gains.

According to Nayyar, one common mistake is claiming indexation for assets that are no longer eligible under the amended law.

She also noted that taxpayers often fail to:

Use the fair market value as on April 1, 2001, where applicable;

Compare the tax payable under both the 20 per cent indexed and 12.5 per cent unindexed methods

Distinguish between capital improvements and routine repair expenses; and

Maintain invoices for improvement costs.

She advised taxpayers to reconcile property transaction details with their Annual Information Statement (AIS) before filing their return to minimise the risk of disputes or tax notices.

For taxpayers selling eligible property, experts say the annual CII notification remains relevant despite the narrowing of indexation benefits. The key is to understand whether the asset qualifies and calculate tax under both available methods before deciding which option to adopt.