CBDT Raises Cost Inflation Index to 376 for FY26

In a move aimed at easing the tax burden on long-term capital gains, the Central Board of Direct Taxes (CBDT) has announced a hike in the Cost Inflation Index (CII) from 363 to 376 for the financial year 2025–26 (FY26). This index is used to adjust the purchase price of assets for inflation, ensuring that tax is levied only on real gains when assets are sold. Though the scope of indexation has been reduced under the Finance Act 2024, the updated index still provides significant relief for certain taxpayers, especially those holding assets acquired before July 23, 2024.

Why in News?

On July 1, 2025, the CBDT issued a notification updating the Cost Inflation Index to 376 for FY26, marking a 3.3% increase from the previous year. This is particularly relevant amid changes introduced under the Finance Act 2024, which limits indexation benefits but retains them for select taxpayers under a grandfathering clause.

Objective of the Update

• To align capital gains taxation with inflation-adjusted asset value.
• To ensure tax equity by offering relief to long-term asset holders.
• To implement the Finance Act 2024 amendments without disrupting legacy investments.

Key Highlights

• CII for FY26: Raised from 363 to 376.
• Applicable From: Financial year 2025–26 (FY26) and Assessment Year 2026–27.

Who Benefits,

• Resident Individuals
• Hindu Undivided Families (HUFs)
• Taxpayers selling assets purchased before July 23, 2024

Tax Options

• Pay 20% tax with indexation, or
• Opt for 12.5% flat tax without indexation

Indexation Scope Narrowed

• As per Finance Act 2024, indexation is now not applicable to most asset classes purchased after July 23, 2024.
• Grandfathering provision allows continued benefit for legacy assets.

Background

• The Cost Inflation Index helps calculate Long-Term Capital Gains (LTCG) by adjusting the purchase price of an asset to account for inflation.

It is used for a range of assets, including,

• Real estate
• Gold
• Financial securities
• Intellectual property
• Prior to reforms, most long-term capital assets were eligible for indexation, but the 2024 tax overhaul restricted this to a narrower category.

Significance

• Offers partial tax relief to investors with long-held assets.
• Encourages early asset disclosure and timely transactions before indexation benefits expire.
• Reinforces CBDT’s intention to simplify the tax system, while maintaining fairness for existing investors.