The Central Board of Direct Taxes (CBDT) in India has officially announced the Cost Inflation Index (CII) at 384 for the financial year 2026-27. This crucial index, effective from April 1, 2026, plays a significant role in calculating inflation-adjusted long-term capital gains for certain taxpayers, potentially lowering their tax obligations.
What is the Cost Inflation Index (CII)?
The Cost Inflation Index is an annual number notified by the CBDT to account for inflation when computing long-term capital gains (LTCG). Instead of taxing the full difference between an asset's purchase and sale price, indexation adjusts the original acquisition cost upwards to reflect inflation. This increased cost reduces the taxable capital gain, thereby decreasing the overall tax liability for eligible transactions.
CII Rises to 384 for FY27
The newly notified CII of 384 for FY2026-27 marks an increase from 376 in the preceding financial year (FY2025-26), indicating a rise in inflation. A higher index value allows eligible taxpayers to claim a larger inflation-adjusted purchase cost, which can lead to lower taxable capital gains when selling qualifying assets during FY27.
Who Can Still Claim Indexation Benefits?
While the annual notification of the CII is a routine exercise, its significance has grown following changes in the capital gains tax regime introduced in the Union Budget 2024. These reforms largely restricted indexation benefits for most newly acquired capital assets.
However, specific categories of taxpayers continue to qualify for these benefits. Notably, resident individuals and Hindu Undivided Families (HUFs) selling land or buildings acquired before July 23, 2024, can still utilize indexation. For these taxpayers, the new CII of 384 will be instrumental in determining the indexed cost of acquisition for computing long-term capital gains.
Eligible taxpayers have the option to choose the earlier capital gains tax regime, which includes indexation, if it results in a lower tax liability compared to the newer tax framework.
Why This Notification Matters
The notification of the CII provides clarity and certainty for taxpayers, chartered accountants, and tax professionals involved in capital gains calculations. It serves as the official reference point for computing indexed acquisition costs wherever indexation is permitted under the Income-tax Act.
Taxpayers planning to dispose of eligible immovable property during FY2026-27 should factor the new CII into their financial projections. This allows them to accurately compare the tax implications under both the old indexation regime and the updated capital gains framework. Ultimately, while indexation has become more limited post-2024 tax reforms, it continues to offer meaningful tax savings for those disposing of certain long-held assets.