The Central Board of Direct Taxes (CBDT) has officially notified the Cost Inflation Index (CII) at 384 for FY 2026-27 through Notification No. 85/2026. According to the tax department's official announcement, this notification applies to Tax Year 2026-27 and subsequent tax years, with effect from April 1, 2026. The notification was issued on July 15, 2026 and published in the gazette notification issued by the Ministry of Finance. As per Zee News, this represents a 2.3% increase from the previous fiscal year's index of 376. The CII serves as a government-notified measure designed to account for inflation while calculating the cost of acquiring certain long-term capital assets, with the index providing for adjusting the purchase price of assets for inflation when calculating long-term capital gains tax after these assets are sold to the next buyer.
The Cost Inflation Index (CII) adjusts the purchase price of eligible assets for inflation, allowing taxpayers to be taxed on actual gains rather than increases caused solely by rising prices. The new CII of 384 represents an increase from the previous fiscal year's index of 376, providing enhanced inflation adjustment for taxpayers. As reported by the tax department, inflation pushes up prices of goods and assets over time, which affects investment values. The higher the index, the less tax you might pay when selling eligible assets, making it particularly beneficial for future investment planning. The CII benefits taxpayers selling assets such as property and land by lowering the taxable profit as the original price at which the asset was bought becomes higher after making an adjustment for the inflation that takes place over the years, providing a more realistic valuation of the capital gain made on the sale. According to Business Standard, the CII is notified under the Income-tax Act, 1961 every year and is popularly used to calculate "indexed cost of acquisition" while calculating capital gains at the time of sale of any capital asset.
Following changes made in the Finance Act, 2024, the indexation benefit using CII has been discontinued for most long-term capital assets transferred on or after July 23, 2024. Instead, a flat tax rate of 12.5% applies without indexation for most cases. However, resident individuals and Hindu Undivided Families (HUFs) selling land or buildings acquired before July 23, 2024, can choose between the new tax rate of 12.5% without indexation and the old rate of 20% with indexation, whichever results in a lower tax liability. As per AMRG Global Managing Partner Rajat Mohan, the annual notification of the Cost Inflation Index reflects the government's commitment to maintaining an objective inflation-adjustment mechanism wherever indexation benefits continue under the new tax framework, providing clarity for computing the indexed cost and reducing interpretational disputes. According to Business Standard, taxpayers selling gold, debt mutual funds, unlisted shares and real estate acquired on or after July 23, 2024 generally cannot claim indexation, while non-resident Indians (NRIs) and corporate taxpayers cannot claim the grandfathered indexation benefit available for eligible immovable property.
The Cost Inflation Index (CII) of 384 for FY 2026-27 remains particularly relevant for property sellers who can still claim indexation benefits under transitional provisions. As per Mint, taxpayers falling under specific transitional rules can calculate their tax under both methods and choose the one that results in a lower liability. Indexation typically offers a greater advantage for properties purchased many years ago, as inflation pushes up the indexed acquisition cost over time, potentially making the taxable gain substantially lower. According to CA Chandni Anandan from ClearTax, the decision should be based on a direct tax calculation, not solely on the tax rate. If the asset was held for a long period and inflation has materially increased the cost base, indexation can reduce taxable gains enough to offset the higher rate. However, for shorter holding periods or limited indexed cost increases, the lower 12.5% rate without indexation may be more beneficial. Taxpayers should retain all documents related to property acquisition and sale, including purchase deeds, sale deeds, payment proofs, allotment letters, brokerage records, and renovation expense documents, before filing their income tax return. As per Business Standard, taxpayers should calculate their tax liability under both methods before filing their income tax return and opt for the one that results in lower tax, with the choice available only to resident individuals and HUFs. The following example demonstrates how indexation works: For a property purchased in FY2014-15 for ₹50 lakh and sold for ₹1 crore in FY26, the indexed cost of acquisition becomes ₹80 lakh (₹50 lakh × 1.6 = ₹80 lakh), resulting in taxable gains of ₹20 lakh and tax liability of ₹4 lakh with indexation versus ₹6.25 lakh without indexation.
