Why Did the Government Increase the Cost Inflation Index to 376?
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Synopsis
Discover how the recent adjustment of the cost inflation index to 376 by the CBDT impacts long-term capital gains tax relief for taxpayers. This change not only eases the tax burden but also aligns capital gains taxation with real profits, ensuring fairness in taxation.
Key Takeaways
- Cost inflation index increased to 376 for FY26.
- Greater relief on long-term capital gains for taxpayers.
- Adjustment reflects real profits, excluding inflationary gains.
- New rules limit indexation benefits for assets sold after July 23, 2024.
- Non-residents must follow a new flat-rate tax system.
New Delhi, July 2 (NationPress) The Central Board of Direct Taxes (CBDT) has revised the cost inflation index (CII) to 376 for the financial year 2025-26 (FY26), an increase from 363 in the previous fiscal year. This change allows taxpayers to claim enhanced relief on long-term capital gains.
The cost inflation index is essential for adjusting the purchase price of assets to account for inflation, effectively reducing the taxable capital gain—the difference between the sale price and the inflation-adjusted purchase price.
With a higher index, taxpayers will benefit from a higher adjusted cost, thereby lowering their tax liabilities upon selling an asset.
This updated index will be applicable for FY26 and the assessment year 2026-27, coinciding with the tax returns for income earned in FY26.
The rationale for this adjustment is to ensure that the capital gains tax is levied only on real profits, excluding gains attributable to inflation.
Despite this positive change, new regulations concerning indexation were introduced under the Finance Act of 2024, streamlining tax processes.
According to the revised rules, indexation benefits are primarily available for assets sold before July 23, 2024. For transactions after this date, residents and Hindu Undivided Families (HUFs) may claim indexation benefits only if the asset was acquired prior to this date.
In such cases, they have the option to pay a 20% long-term capital gains tax with indexation rather than a flat 12.5% rate without indexation.
This option is unavailable to non-resident Indians (NRIs), companies, or limited liability partnerships (LLPs), who must adhere to the new flat-rate structure.
This inflation index revision provides relief to numerous taxpayers planning to sell long-term assets, including land, property, and shares, particularly those still eligible for indexation under the grandfathering clause.
Point of View
The increase in the cost inflation index is a welcome relief for taxpayers, ensuring that capital gains tax reflects real profits rather than inflationary gains. This move by the government signifies a progressive step towards a more equitable tax system.
NationPress
11/07/2025
Frequently Asked Questions
What is the cost inflation index?
The cost inflation index (CII) is a measure used to adjust the purchase price of an asset for inflation, allowing taxpayers to calculate inflation-adjusted capital gains.
How does the increase in CII affect taxpayers?
With the CII raised to 376, taxpayers can claim greater relief on long-term capital gains, reducing their overall tax liability.
What are the new rules regarding indexation?
The updated rules specify that indexation benefits will mainly apply to assets sold before July 23, 2024, while later sales can claim benefits only if the asset was acquired before that date.
Who is affected by the new capital gains tax rules?
Resident individuals and Hindu Undivided Families can opt for indexation benefits, while non-resident Indians, companies, and LLPs must follow the new flat-rate system.
What is the significance of the revised CII?
The revised CII helps ensure that capital gains tax is levied on actual profits, making the tax system fairer for taxpayers.
