The Cost Inflation Index (CII) helps determine the yearly increase in the prices of goods and assets caused by inflation. For the Financial Year 2025-26, the Cost Inflation Index (CII) is 376.
What is the Cost Inflation Index?
The Cost Inflation Index table is used to compute long-term capital gains arising from the sale or transfer of a capital asset. The profit earned from selling or transferring assets like land, property, stocks, shares, trademarks, or patents is known as a capital gain.
Long-term capital assets are usually recorded in books at their purchase cost. Therefore, even when the market value rises, these assets cannot be revalued. When sold, the profit appears higher because of the gap between the sale price and acquisition cost, leading to a higher tax burden.
Applying the Cost Inflation Index adjusts the purchase price to reflect inflation, reducing the taxable capital gains and overall tax liability.
Cost Inflation Index Table from FY 2001-02 to FY 2025-26
| Financial Year | Cost Inflation Index (CII) |
| 2001-02 (Base year) | 100 |
| 2002-03 | 105 |
| 2003-04 | 109 |
| 2004-05 | 113 |
| 2005-06 | 117 |
| 2006-07 | 122 |
| 2007-08 | 129 |
| 2008-09 | 137 |
| 2009-10 | 148 |
| 2010-11 | 167 |
| 2011-12 | 184 |
| 2012-13 | 200 |
| 2013-14 | 220 |
| 2014-15 | 240 |
| 2015-16 | 254 |
| 2016-17 | 264 |
| 2017-18 | 272 |
| 2018-19 | 280 |
| 2019-20 | 289 |
| 2020-21 | 301 |
| 2021-22 | 317 |
| 2022-23 | 331 |
| 2023-24 | 348 |
| 2024-25 | 363 |
| 2025-26 | 376 |
How is the Cost Inflation Index Used in Income Tax?
Long-term capital assets are recorded in the books at their cost price. Despite inflation over the years, these assets are not revalued. When such assets are sold, the capital gain appears high because of the difference between the sale price and the original purchase price, which results in a higher tax liability.
The Cost Inflation Index (CII) is applied to long-term capital assets to adjust the purchase price for inflation. By increasing the purchase cost through indexation, the taxable capital gain is reduced, leading to lower taxes for the taxpayer.
What is the Concept of the Base Year in Cost Inflation Index?
The base year is the first year used in the Cost Inflation Index and is assigned an index value of 100. The CII for all other years is compared with the base year to calculate inflation.
For assets acquired before the base year, taxpayers can use the higher of the actual purchase cost or the Fair Market Value (FMV) as of the first day of the base year as the adjusted purchase price. Indexation benefits are then applied to this adjusted purchase price. The FMV is determined based on the valuation report of a registered valuer.
Why Was the Base Year Changed from 1981 to 2001?
Initially, 1981-82 was the base year. However, taxpayers faced difficulties in valuing assets purchased before 1st April 1981, and tax authorities had challenges relying on those valuation reports. To simplify the process and ensure accurate valuations, the government shifted the base year to 2001.
As a result, for capital assets purchased before 1st April 2001, taxpayers can take the higher of the actual cost or FMV as of 1st April 2001 as the purchase price and avail the indexation benefit for calculating long-term capital gains.
Why is the Cost Inflation Index Calculated?
The Cost Inflation Index (CII) is calculated to adjust asset prices according to inflation. In simple terms, as inflation increases over time, the prices of goods and assets rise, and CII helps factor this increase into the computation of long-term capital gains.
Who Notifies the Cost Inflation Index?
The Central Government notifies the Cost Inflation Index through the official gazette.
The CII is calculated as:
Cost Inflation Index = 75% of the average rise in the Consumer Price Index (CPI) – Urban – for the immediately preceding year.
Note: The Consumer Price Index (CPI) compares the current cost of a basket of goods and services representing the economy with the cost of the same basket in the previous year to measure the increase in prices.
How is the Indexation Benefit Applied to Long-term Capital Assets?
When the indexation benefit is applied to the Cost of Acquisition (purchase price) of a long-term capital asset, it is adjusted to become the Indexed Cost of Acquisition, which reduces the taxable capital gain on the asset.
Points to Ponder
- For property received through a will, the CII should be taken from the year in which the property was originally purchased by the previous owner.
- Improvement costs incurred before 1st April 2001 are ignored for indexation purposes.
- Indexation benefits are not available for bonds or debentures, except for capital indexation bonds or Sovereign Gold Bonds (SGBs) issued by RBI.
- From 1st April 2023, indexation benefits are not available for Debt Funds.
- From 23rd July 2024, indexation benefits are not available for any asset. However:
- For land or buildings acquired before 23rd July 2024, taxpayers can choose to pay tax at 12.5% without indexation or 20% with indexation.
- For land or buildings purchased on or after 23rd July 2024, the tax rate will be 12.5% without indexation, applicable only to assets qualifying as long-term.
- For land or buildings acquired before 23rd July 2024, taxpayers can choose to pay tax at 12.5% without indexation or 20% with indexation.
Practical Examples
Case 1: Rajat purchased a flat in FY 2001-02 for ₹10,00,000 and sells it in FY 2017-18.
- CII for 2001-02 = 100, CII for 2017-18 = 272
- Indexed Cost of Acquisition = 10,00,000 × 272 / 100 = ₹27,20,000
Case 2: Rohit purchased a capital asset in FY 1995-96 for ₹2,00,000. FMV on 1st April 2001 = ₹3,20,000. She sells the asset in FY 2016-17.
- Since the asset was purchased before the base year, cost of acquisition = higher of actual cost or FMV on 1st April 2001 = ₹3,20,000
- CII for 2001-02 = 100, CII for 2016-17 = 264
- Indexed Cost of Acquisition = 3,20,000 × 264 / 100 = ₹8,44,800
Case 3: Rahane purchased equity shares worth ₹1,00,000 on 1st March 2015 and sells them on 1st April 2020.
- CII for FY 2014-15 = 240, CII for FY 2020-21 = 301
- Indexed Cost of Acquisition = 1,00,000 × 301 / 240 = ₹1,25,416
Case 4: Rohan purchased Sovereign Gold Bonds (SGB) in November 2015 at ₹2,00,000 and redeemed them prematurely in January 2021 at ₹2,55,000.
- CII for FY 2015-16 = 254, CII for FY 2020-21 = 301
- Indexed Cost of Acquisition = 2,00,000 × 301 / 254 = ₹2,37,007
Case 5: Suman bought a house in December 2012 at ₹20,00,000 and sold it in August 2023.
- CII for FY 2012-13 = 200, CII for FY 2023-24 = 348
- Indexed Cost of Acquisition = 20,00,000 × 348 / 200 = ₹34,80,000
Case 6: Calculate LTCG tax if a property is sold for ₹10,00,000 during FY 2024-25, which was purchased at ₹2,00,000 in June 2001.
- CII for FY 2001-02 = 100, CII for FY 2024-25 = 363
- Indexed Cost of Acquisition = 2,00,000 × 363 / 100 = ₹7,26,000
- LTCG = Sale Price – Indexed Cost = 10,00,000 – 7,26,000 = ₹2,74,000
Computation of LTCG with and without Indexation Benefit (as per Budget 2024)
| Particulars | With Indexation Benefit | Without Indexation Benefit |
| Sale Consideration | ₹10,00,000 | ₹10,00,000 |
| Less: Cost of Acquisition | ₹7,26,000 (2,00,000 × 363 / 100) | ₹2,00,000 |
| Long-Term Capital Gain (LTCG) | ₹2,74,000 (10,00,000 − 7,26,000) | ₹8,00,000 (10,00,000 − 2,00,000) |
| Tax on LTCG at 20% | ₹54,800 | – |
| Tax on LTCG at 12.5% | – | ₹1,00,000 |
This table clearly shows the impact of indexation on reducing taxable LTCG, helping taxpayers compare the tax liability with and without applying the Cost Inflation Index.
FAQs on Cost Inflation Index (CII) in India
1. When was India’s Cost Inflation Index introduced?
The Cost Inflation Index (CII) was first introduced in India in 1981 to adjust asset values for inflation while calculating long-term capital gains.
2. What does CII mean in the context of income tax?
In income tax, CII stands for Cost Inflation Index, which is used to measure the annual increase in the cost of goods and capital assets due to inflation. It helps in calculating the indexed cost of acquisition for long-term capital gains.
3. What is the base year for Cost Inflation Index?
The base year for CII was changed from 1981 to 2001. This change was made to make it easier for taxpayers to determine the Fair Market Value (FMV) of assets acquired before 1st April 2001. Taxpayers can choose the higher of the actual purchase cost or the FMV as on 1st April 2001 to calculate indexed cost.
4. What is the CII for FY 2025-26?
The Cost Inflation Index for FY 2025-26 is 376.
5. How is the indexed cost of acquisition calculated?
The formula for indexation is:
Indexed Cost of Acquisition = (CII of year of sale ÷ CII of year of purchase) × Cost of Acquisition
6. What is the purpose of applying the Cost Inflation Index?
Capital assets are recorded at cost price in the books, but their market value may increase due to inflation. By applying CII, the purchase price is adjusted for inflation, reducing the taxable capital gains and lowering the overall tax liability.
7. Does CII apply to all assets?
CII applies only to long-term capital assets, such as land, property, shares, and bonds eligible for indexation. It does not apply to debt mutual funds (from FY 2023-24 onwards) or most bonds, except capital indexation bonds or Sovereign Gold Bonds (SGBs) issued by RBI.
8. Can CII be applied to inherited property?
Yes, for inherited property, the CII of the year in which the previous owner purchased the asset is used to calculate the indexed cost.
9. How does the change in base year benefit taxpayers?
Changing the base year to 2001 simplifies valuation of older assets. Taxpayers can now take the higher of actual cost or FMV as of 1st April 2001 for assets acquired before this date, ensuring maximum indexation benefit.
10. Is CII benefit available for assets sold after 23rd July 2024?
From 23rd July 2024, indexation benefits will not be available for most assets. However, taxpayers can opt for a 12.5% tax rate without indexation or a 20% tax rate with indexation on certain long-term assets like land or buildings acquired before this date.
11. Who notifies the Cost Inflation Index every year?
The Central Government notifies the CII for each financial year through the official gazette, based on 75% of the rise in the Consumer Price Index (CPI – Urban) for the preceding year.
12. Can indexation reduce LTCG tax liability significantly?
Yes, applying CII adjusts the purchase price upward, reducing the long-term capital gains and consequently the tax payable, which can lead to significant savings for taxpayers.
