Indexed Cost of Acquisition and Cost of Improvement for Computation of Capital Gains AY 2026-27

Indexed Cost of Acquisition and Cost of Improvement for Computation of Capital Gains

Introduction
Indexation adjusts the cost of acquisition and cost of improvement of a capital asset to neutralise inflation’s impact, ensuring tax on actual gains. The Cost Inflation Index (CII) is used for this purpose. Indexation is no longer available for assets transferred on or after 23-07-2024, except for land or buildings acquired before this date by resident individuals or HUFs.

Indexed Cost of Acquisition and Cost of Improvement

Long-term capital gains arising from the transfer of capital assets on or after 23rd July 2024 will be taxed at a uniform rate of 12.5%, and the benefit of indexation will no longer be available

• Grandfathering Provision for Land and Building

To ease the transition, a grandfathering relief has been provided for resident individuals and HUFs. If they transfer land or building acquired before 23-07-2024, they can choose to pay tax at the old rate of 20% with indexation, instead of the new 12.5% without indexation, if it results in a lower tax liability.

• Calculation of Indexation of Cost of Acquisition and Cost of Improvement

• Calculation of Indexed Cost of Acquisition
  Indexed Cost of Acquisition=Cost of Acquisition×CII of Transfer Year/CII of Acquisition Year (or 2001-02, whichever is later)
• Calculation of Indexed Cost of Improvement Indexed Cost of Improvement=Cost of Improvement×CII of Transfer Year/CII of Improvement Year

Notified Cost Inflation Index (CII)

The indexation of cost of improvement shall be done on the basis of following notified Cost Inflation Index: