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CBDT raises cost inflation index to ease capital gains tax burden
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| Posted Date : 05-Jul-2025 , 08:41:18 am | Posted By CASANSAAR |
The Central Board of Direct Taxes (CBDT) has revised a key metric used to calculate inflation-adjusted purchase price of assets, enabling sellers to claim greater tax relief on asset sales.
An official notification showed that the cost inflation index (CII), used to neutralize the impact of inflation on asset prices, has been raised to 376 from the earlier 363.
A higher index boosts the inflation-adjusted purchase price of an asset, thereby reducing the taxable capital gains. Capital gain is calculated as the difference between the sale price and the indexed purchase price, also factoring in the cost of improvements.
The revised index applies to the current financial year (FY26) and the corresponding assessment year 2026-27 and beyond. The assessment year refers to the period in which income earned during the previous financial year is assessed and tax returns are filed.
The rationale is that long-term capital gains (LTCG) on assets such as land and buildings should apply only to real profits, excluding gains purely due to inflation.
However, the scope of indexation benefits has been narrowed. The Finance Act of 2024 restructured capital gains tax provisions as part of the government’s broader push to simplify the tax system.
Under the new rules, indexation benefits are broadly available for assets sold before 23 July 2024. A grandfathering clause allows resident individuals and Hindu Undivided Families (HUFs) to continue claiming indexation even on sales made after this date, provided the asset was acquired before 23 July 2024. In such cases, they can opt to pay LTCG tax at 20% with indexation, rather than the new flat 12.5% rate without indexation.
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Category : CBDT |
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