1. Regulatory Snapshot
On 1 July 2025 the Central Board of Direct Taxes (CBDT) issued Notification No. 70/2025 [S.O. 2954(E)] inserting Serial No. 25 in the master CII table under Explanation (v) to section 48 of the Income-tax Act, 1961. The new index is:
| Serial No. | Previous Year (P.Y.) | Cost-Inflation Index |
|---|---|---|
| 25 | 2025-26 | 376 |
The notification takes effect 1 April 2026 and therefore applies from Assessment Year (A.Y.) 2026-27 onward.
2. Why the CII Matters
Section 45 taxes capital gains; section 48 prescribes the computation mechanism. Explanation (v) empowers the Central Government to notify an index to neutralise inflation while determining:
- Indexed Cost of Acquisition (ICOA)
ICOA = Original Cost × CII of year of transfer ÷ CII of year of acquisition - Indexed Cost of Improvement (ICOI)
ICOI = Cost of Improvement × CII of year of transfer ÷ CII of year of improvement
The higher ICOA/ICOI lowers taxable gains, providing genuine relief against inflation.
3. Evolution of the CII (Base Year 2001-02 = 100)
| P.Y. | CII | P.Y. | CII | P.Y. | CII |
|---|---|---|---|---|---|
| 2001-02 | 100 | 2010-11 | 167 | 2019-20 | 289 |
| 2002-03 | 105 | 2011-12 | 184 | 2020-21 | 301 |
| 2003-04 | 109 | 2012-13 | 200 | 2021-22 | 317 |
| 2004-05 | 113 | 2013-14 | 220 | 2022-23 | 331 |
| 2005-06 | 117 | 2014-15 | 240 | 2023-24 | 348 |
| 2006-07 | 122 | 2015-16 | 254 | 2024-25 | 363 |
| 2007-08 | 129 | 2016-17 | 264 | 2025-26 | 376 |
| 2008-09 | 137 | 2017-18 | 272 | ||
| 2009-10 | 148 | 2018-19 | 280 |
Note: The base year switched from 1981-82 to 2001-02 via Finance Act 2017 for more realistic valuation of legacy assets.
4. Recent Legislative Shifts Impacting Indexation
| Change | Effective date | Practical impact |
|---|---|---|
| Flat 12.5 % LTCG tax (no indexation) vs. 20 % with indexation – taxpayer’s choice for property | Transfers on/after 23 Jul 2024 | For immovable property bought ≤ 22 Jul 2024, individuals/HUFs may still choose 20 % with indexation; property acquired ≥ 23 Jul 2024 is taxed at 12.5 % without indexation. |
| Debt & other specified mutual funds – indexation withdrawn | Investments ≥ 1 Apr 2023 (and certain transfers ≥ 23 Jul 2024) | Gains now taxed at slab or 12.5 % flat (where applicable) without indexation, erasing the earlier 20 % + indexation advantage. |
5. Illustrative Computations
| Scenario | Facts | Indexed cost | LTCG & Tax |
|---|---|---|---|
| Sale of residential house | Bought ₹20 lakh (FY 2004-05; CII 113). Sold ₹1.2 crore in FY 2025-26 (CII 376). | ₹20 lakh × 376/113 = ₹66.55 lakh | Gain ≈ ₹53.45 lakh → choose 20 % with indexation = ₹10.69 lakh (+ cess) or 12.5 % without indexation on ₹1 crore = ₹12.5 lakh. Taxpayer benefits from indexation. |
| Debt MF units bought Apr 2023 | Invested ₹10 lakh; NAV on redemption Jul 2025 = ₹12 lakh. | Indexation not allowed. | Entire ₹2 lakh gain taxed at slab / 12.5 % (if conditions met). |
| Listed shares bought pre-31 Jan 2018 | FMV as on 31-01-2018 becomes substituted cost; still indexable in eligible cases (for trades before 23 Jul 2024). |
6. Special Nuances & Caution Points
- NRIs & Foreign Currency Assets
First/Second provisos to s. 48 mandate foreign-exchange indexation (not CII) for shares/debentures of Indian companies acquired in foreign currency. Normal CII therefore does not apply. - Slump Sale (s. 50B)
Indexation not permissible; net worth computed book-value wise. - Bonds & Debentures
Except capital indexed bonds or sovereign gold bonds, no CII allowed. - Set-off & Carry-forward
LTCG after indexation qualifies for set-off against LTCL; choice of 12.5 % (without indexation) foregoes such set-off > plan carefully. - Documentation
Preserve purchase deeds, cost break-up, and improvement invoices; obtain FMV reports where 2001 value is substituted.
7. Strategic Planning Tips for FY 2025-26
| Objective | Action |
|---|---|
| Optimise tax on property sale | If purchased ≤ 22 Jul 2024, run both options (indexed 20 % vs. flat 12.5 %) before deciding. |
| Use remaining indexation window | Consider advancing sale of non-financial assets (jewellery, art, land) to FY 2025-26 to utilise higher CII 376 before any future policy shifts. |
| Harvest losses/gains | Pair long-term capital losses (after indexation) with gains taxable at 20 % to minimise net liability. |
| Maintain compliance | Quote correct CII in the capital-gains schedule of the ITR; mismatches trigger CPC-ITR automated notices. |
8. Frequently-Asked Questions (FAQ)
- Does the 12.5 % scheme apply to companies? – No. The concessional 12.5 % (without indexation) is available only to resident individuals & HUFs.
- Can I still adopt FMV as on 1-Apr-2001? – Yes; the 2001 base remains intact for assets acquired earlier.
- Is indexation automatic? – Only where the statute permits and the taxpayer opts for it; e-filing utilities require manual entry.
- What about joint development agreements (JDA)? – Transfer date is as per s. 45(5A); use CII of that year for ICOA computation.
9. Conclusion
The release of CII 376 continues the yearly inflation calibration but arrives in a drastically altered landscape where indexation is no longer universal. Capital-gains planning now demands:
- Asset-class awareness – Know whether indexation survives for your asset.
- Date sensitivity – Acquisition date (≤ 22 Jul 2024 vs. later) dictates options.
- Scenario modelling – Compare 20 % with indexation vs. 12.5 % flat vs. slab-rate (for debt MFs).
A disciplined record trail and proactive tax modelling will ensure you legitimately harness the last mile of indexation relief while staying ahead of compliance risks.
Disclaimer: This article is for educational purposes only. Please consult a qualified tax professional for personalised advice in line with the latest Finance Act, CBDT circulars, and judicial precedents.
Stox N Tax 
Leave a comment