Cost Inflation Index (CII) History & Its Phase-Out: What Taxpayers Must Know
- shubhamtulsian05
- 6 days ago
- 4 min read
For decades, the Cost Inflation Index (CII) was a number every Indian taxpayer with capital gains needed to know — published annually by the CBDT, it allowed the cost of an asset purchased years ago to be adjusted upward for inflation before computing capital gains, reducing the taxable gain. Budget 2024's removal of indexation benefit for most assets has made CII far less relevant for new transactions — but it hasn't disappeared entirely. This guide explains exactly when CII still matters in 2026.
What is the Cost Inflation Index?
CII is a number notified annually by the CBDT under Section 48, representing the general inflation level relative to a fixed base year (currently 2001-02, indexed at 100). To compute indexed cost of acquisition, the formula was: Indexed Cost = Original Cost × (CII of year of sale ÷ CII of year of purchase). This adjustment ensured taxpayers weren't taxed on purely inflationary gains that didn't represent real economic profit.
Where Indexation Has Been Removed (Post-Budget 2024)
For all asset sales where the transfer occurs on or after 23rd July 2024, indexation benefit has been removed for: equity shares, equity mutual funds, debt instruments, gold, unlisted shares, and most capital assets in general — replaced by a flat 12.5% LTCG rate without indexation.
Where CII Still Matters in 2026 — The Important Exceptions
1. Immovable Property Acquired Before 23rd July 2024
This is the most significant ongoing use of CII. For land and building acquired before the cutoff date, taxpayers retain a one-time option to choose between 12.5% without indexation OR 20% with indexation — whichever results in lower tax. To exercise this choice meaningfully, you must actually compute the indexed cost using CII, making CII tables essential reference material for any property sale of this vintage.
2. Computing Fair Market Value as on 1st April 2001
For assets acquired before 1st April 2001, taxpayers can substitute the fair market value as on that date for the original cost — and CII from the base year (2001-02 = 100) onward is still used to index this stepped-up cost for the 20%-with-indexation computation on pre-July-2024 property.
3. Pending Litigation and Past Assessment Years
For capital gains computations relating to transfers that occurred before 23rd July 2024 — including matters still under assessment, appeal, or reassessment — the old indexation rules and corresponding CII figures remain fully applicable, as the new rules operate prospectively.
4. Slump Sale Transactions (Limited Continuing Relevance)
Certain business reorganisation transactions involving slump sale of undertakings may still involve indexation considerations depending on the specific asset composition and transaction structuring — requiring careful case-by-case analysis.
Recent CII Values for Reference (Base Year 2001-02 = 100)
FY 2020-21: 301
FY 2021-22: 317
FY 2022-23: 331
FY 2023-24: 348
FY 2024-25: 363 (final year CII is broadly relevant for most new transactions, given the July 2024 cutoff)
Note: CII for subsequent years continues to be notified by the CBDT primarily to support the ongoing transitional property calculations and base-year stepped-up cost computations described above — taxpayers should always verify the latest officially notified figures for the specific year of purchase and year of sale relevant to their computation, rather than relying on historical references that may not reflect the most current notification.
How to Calculate Indexed Cost — Worked Example
Suppose a property was purchased in FY 2010-11 for ₹50,00,000 (CII for FY 2010-11 = 167) and sold in FY 2025-26 (relevant CII = approximately 376, for illustration) before the property qualifies under the pre-July-2024 transitional rule:
Indexed Cost of Acquisition: ₹50,00,000 × (376 ÷ 167) = ₹1,12,57,485 (approximately)
If sale price is ₹1,80,00,000: Indexed LTCG = ₹1,80,00,000 − ₹1,12,57,485 = ₹67,42,515
Tax at 20% with indexation: ₹13,48,503 (approximately, before cess/surcharge)
Compare with 12.5% without indexation: Tax = 12.5% of (₹1,80,00,000 − ₹50,00,000) = 12.5% of ₹1,30,00,000 = ₹16,25,000
In this illustration, the 20%-with-indexation option results in lower tax — demonstrating why the comparison must always be computed for older, well-appreciated properties rather than defaulting to the seemingly lower 12.5% headline rate.
Common Mistakes in CII Application
Using the wrong year's CII: The index must correspond precisely to the financial year of acquisition (or improvement) and the financial year of sale — using adjacent years' figures, even by mistake, materially changes the computed gain.
Forgetting cost of improvement indexation: Capital improvements made to a property at different points in time must each be indexed separately using the CII applicable to the year the improvement was made — not the original purchase year.
Applying indexation to post-July-2024 transactions: For any asset (other than the specific pre-July-2024 property exception) sold after the cutoff, indexation simply does not apply — applying it incorrectly leads to an understated tax liability and potential notice.
How PGT & Associates Can Help
PGT & Associates provides precise indexed cost of acquisition computations for property and other eligible transitional assets, comparing the indexation vs non-indexation options to identify the genuinely lower-tax route, and ensures correct CII application for both current-year transactions and historical assessment matters. Contact us at +91-87994-99189 before finalising any property sale.
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