Cost Inflation Index set higher at 376, long term capital gain to be lower on land, trademarks, patents

Long-term capital gain liability on the sale or transfer of any capital asset, such as land, property, trademarks and patents is expected to be lower this year as Cost Inflation Index (CII) for Financial Year 2025-26 has been fixed at 376 as against 363 for Financial Year 2024-25. This shows a rise of 3.58 per cent.

The Central Board of Direct Taxes (CBDT) has notified the index. It will be useful for land or building purchased before July 23. 2024

“This notification shall come into force on the 1st day of April, 2026 and shall accordingly apply to the Assessment Year 2026-27 and subsequent years,” it said. The CII number assists in determining the long-term capital gains on which an assessee is required to pay taxes when she/he files income tax returns (ITR) next year.

CII is a way to calculate inflation, that is, an estimated increase in the price of a good or service over the years. Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it. A higher purchase price means lesser profits, which effectively means a lower tax.

With the help of indexation, one will be able to lower her/his long-term capital gains, which brings down taxable income. The rate of inflation to be used for indexation can be obtained from the government’s CII.

The Central government notifies the index. Usually, for the calculation of CII, gains on long-term capital are taken into account. To benefit the taxpayers, the CII is applied to the long-term capital assets, due to which purchase cost increases, resulting in lesser profits and lesser taxes.

The indexation was in news last year as Finance Act 2023 removed this for debt mutual funds. From April 1 and onwards gain for funds are taxed at the investor’s tax slab rates, rather than the previous 20 per cent with indexation benefit and 10 per cent without that as a result, if the investor is subject to the highest tax bracket, this rate would be 35.8 per cent (including surcharge and cess).

As of July 23, 2024, the government has discontinued the indexation benefit on long-term capital gains. This means that investors can no longer adjust the purchase price of their investments for inflation when calculating capital gains for tax purposes. Consequently, long-term capital gains will be computed based on the actual purchase price, potentially resulting in higher taxable gains and, therefore, a higher tax liability for investors.

However, in case of transfer of land or building acquired before July 23, 2024, taxpayers have the option to pay tax at either a rate of 12.5 per cent without indexation benefits or 20 per cent with indexation benefits.

However, on land or building purchased on or after July 23, 2024, the tax rate will be 12.5 per cent without indexation benefit, applicable to assets qualified as long term.

Published on July 2, 2025