income tax
Published on 25 July 2025
Cost Inflation Index 2025-26: Key Updates for Taxpayers
Cost Inflation Index (CII) for FY 2025-26: What You Need to Know
New CII Announced by CBDT
The Central Board of Direct Taxes (CBDT) has announced that the Cost Inflation Index (CII) for the financial year 2025–26 is 376. This figure, applicable from April 1, 2026, will be used for calculating long-term capital gains (LTCG) on the sale of capital assets for the assessment year 2026–27 onwards.
In practical terms, a higher CII increases the allowable indexed cost of acquisition, which directly lowers the taxable capital gains when you sell a long-term asset. For investors and property holders, this update is key to planning tax-efficient exits.
What Exactly Is the Cost Inflation Index?
The Cost Inflation Index (CII) is a number released each year by the Income Tax Department to help adjust an asset’s cost for inflation. When you hold an asset—like real estate, gold, or unlisted shares—for more than 24 or 36 months (depending on the asset class), you’re taxed under long-term capital gains rules.
But since inflation eats into the rupee’s value over time, the CII lets you inflate the cost of purchase, so that only the true profit (i.e., profit beyond inflation) is taxed. This mechanism ensures fairer taxation, especially when assets are held over long periods.
Which Assets Qualify for Indexation in FY 2025–26?
Indexation benefits continue to apply to:
- Land and residential/commercial buildings
- Gold, jewellery, and other physical precious metals
- Unlisted equity shares and debentures
- Patents, trademarks, copyrights, and other capital assets
How Indexation Impacts Your Tax Calculation
Here’s how the calculation typically works:
Indexed Cost = Purchase Cost × (CII in Year of Sale ÷ CII in Year of Purchase) LTCG = Sale Price – Indexed Cost – (Indexed Improvement Costs, if applicable)
Let’s look at an example:
- Property purchased in FY 2012–13 at ₹10,00,000 (CII then was 200)
- Sold in FY 2025–26 for ₹25,00,000 (CII now is 376)
Indexed Cost = ₹10,00,000 × (376 ÷ 200) = ₹18,80,000 Taxable LTCG = ₹25,00,000 – ₹18,80,000 = ₹6,20,000
Without indexation, the gain would be ₹15,00,000—so indexation gives significant tax relief by recognising inflation.
Recent CII Values for Reference
| Financial Year | CII |
|---|---|
| 2021–22 | 317 |
| 2022–23 | 331 |
| 2023–24 | 348 |
| 2024–25 | 363 |
| 2025–26 | 376 |
Why This Matters: Key Takeaways from the Update
Reflects Inflation Accurately
The CII increase from 363 to 376 reflects the impact of inflation during the year, and helps taxpayers avoid paying capital gains tax on notional profits.
Continued Support for Asset-Holders
While debt mutual funds lost indexation from July 2024, real estate, unlisted shares, and other physical or IP-based assets remain eligible, protecting investors who hold such assets long term.
Advance Tax Planning Made Easier
Since the number is notified well ahead of AY 2026–27, both individuals and advisors can plan LTCG tax liabilities, advance tax instalments, and post-tax returns accordingly.
Frequently Asked Questions
1. What is CII and why is it relevant to taxpayers? CII helps adjust for inflation in long-term capital gains tax. It ensures that only actual profit—not the inflationary increase—is taxed when you sell a long-term asset.
2. Which asset classes qualify for indexation in FY 2025–26? Land, buildings, gold, unlisted shares, and IP assets (held long term) are eligible. Debt mutual funds are excluded post-July 2024.
3. How does the higher CII reduce my tax bill? A higher CII increases your indexed acquisition cost, which reduces the taxable profit and therefore your capital gains tax liability.
4. What should I do when filing returns for AY 2026–27? Use the CII of 376 for any asset sale made in FY 2025–26, maintain documentation for purchase/improvement, and apply indexation correctly in your capital gains calculation.
In Summary
The government’s latest update to the Cost Inflation Index signals its ongoing intent to tax only real economic gains. For taxpayers selling long-held assets in FY 2025–26, this revision can make a measurable difference in their final tax burden. Be sure to incorporate this new index while preparing your capital gains schedule and stay compliant.