CBDT raises Cost Inflation Index to 384 for 2026-27; here's what it means for taxpayers
The Central Board of Direct Taxes (CBDT) raised the Cost Inflation Index to 384 for the financial year 2026-27, providing a higher inflation-adjusted purchase cost to lower taxable gains on eligible assets.
Cost Inflation Index (CII)- Image for representational purpose
Cost Inflation Index (CII) 2026: In a significant update for taxpayers of the country, the Central Board of Direct Taxes (CBDT) has increased the Cost Inflation Index (CII) for the financial year 2026-27 by 2.3 per cent. In a big update, the direct tax body has increased the CII to 384 from the corresponding figure of 376 in the previous financial year. For those unversed, the CBDT issues the CII every financial year, which is used by taxpayers eligible to claim indexation benefits will have a higher inflation-adjusted purchase cost of their assets, resulting in lower taxable capital gains on their sale.
What is Cost Inflation Index and how it's used?
The Cost Inflation Index, or CII, provides 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. It 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. It is aimed to provide a more realistic valuation of the capital gain made on the sale as the original price at which these properties were bought is very low.
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To calculate capital gains, the government establishes a benchmark year with a baseline index value of 100 to measure subsequent inflation. Currently, the fiscal year 2001-02 serves as this baseline.
Because the Cost Inflation Index (CII) adjusts an asset's original purchase price to reflect rising living costs, a higher index value increases your "indexed cost of acquisition" effectively lowering your taxable capital gains. Conversely, a lower index value provides a smaller inflation adjustment, resulting in a lower indexed cost and a larger tax liability.
However, 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.
How does Cost Inflation Index impact taxpayers?
Instead, a flat tax rate of 12.5 per cent applies without indexation. The CII remains relevant only in a limited grandfathered case: 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 per cent without indexation and the old rate of 20 per cent with indexation, whichever results in a lower tax liability.
(With inputs from agencies)
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