Detailed Explanation
How it works
After Budget 2024, indexation is largely withdrawn (LTCG at 12.5% without indexation), though resident individuals/HUF retain an option of 20% with indexation for property acquired before 23 July 2024.
Where indexation still lives after FA 2024
The Finance (No. 2) Act 2024 removed indexation from the general capital-gains computation (moving to flat 12.5% LTCG) — but preserved a choice for land and buildings acquired before 23 July 2024 by resident individuals and HUFs: pay the lower of 12.5% without indexation or 20% with indexation. Indexation also continues to matter for computing grandfathered positions and for assets sold before the changeover dates in pending assessments.
Worked example
Plot bought FY 2010-11 (CII 167) for Rs.25,00,000, sold FY 2026-27 for Rs.95,00,000. Indexed cost = 25,00,000 × CII(2026-27)/167 — using an illustrative CII of 376, that is Rs.56,28,742, gain Rs.38,71,258, tax at 20% = Rs.7,74,252. Without indexation: gain Rs.70,00,000 × 12.5% = Rs.8,75,000. Indexation wins here — long holding, moderate appreciation. Flip the numbers (short holding, sharp appreciation) and 12.5% wins. Compute both, every time, with the actual CBDT-notified CII for the sale year.
Mechanics worth remembering
The base year is 2001-02 (CII 100) — for older assets, adopt FMV as on 1 April 2001 (capped at stamp value for property) as cost; improvements index from the year incurred; and inherited assets take the previous owner's cost and holding period, with indexation (per the judicially settled view) from the previous owner's acquisition year.
Frequently asked questions
What is indexation?
Adjusting the purchase cost of an asset for inflation using the Cost Inflation Index when computing long-term capital gains.
Is indexation still available?
Largely withdrawn after Budget 2024; an option of 20% with indexation remains for older property held by resident individuals/HUF.
This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.