All about Indexation under the Income Tax Act

FAQs on All about Indexation (Cost Inflation Index)

1. What is indexation in taxation?

A: Indexation adjusts the purchase price of a capital asset (like property or shares) for inflation using the Cost Inflation Index (CII). This reduces the taxable long-term capital gain (LTCG), lowering your tax liability.

2. How does indexation work?

A: Use this formula:

Indexed Cost = Original Cost × (CII of Sale Year / CII of Purchase Year)

Example: Property bought for ₹20 lakh in FY 2005-06 (CII = 117), sold in FY 2024-25 (CII = 363).

Indexed Cost = ₹20 lakh × (363 / 117) = ₹62.05 lakh.

3. Is indexation still available after Budget 2024?

A: Indexation has been removed for most assets sold on or after July 23, 2024, except:

• Immovable property (bought before July 23, 2024): Choose between 12.5% without indexation or 20% with indexation (20.8% with cess).

4. Which assets no longer qualify for indexation?

A: For sales on or after July 23, 2024, no indexation for:

• Gold and gold jewellery (including ETFs)
• Listed securities (shares, equity mutual funds, ETFs)
• Bonds and debentures
• Debt mutual funds (post-April 1, 2023 purchases)
• Other capital assets (e.g., art, vehicles, unlisted shares)
• Immovable Property (bought after July 23, 2024)

5. What is the holding period for long-term capital gains?

A:

• Listed shares, equity mutual funds, ETFs, ZCBs: More than 12 months.
• Unlisted shares, immovable property, gold, bonds, etc.: 24 months (reduced from 36 months in Budget 2024).

Please note capital gain on following assets will always be short term irrespective of period of holding:-

• Units of a specified mutual fund acquired on or after April 01, 2023
• Market linked Debentures
• Unlisted bond and unlisted debenture which is transferred or redeemed or matures on or after July 23, 2024.
• Depreciable assets

6. Can I still avail indexation benefit in case of sale of immovable property?

A:

• Property Bought before July 23, 2024: Yes, choose between 12.5% tax without indexation or 20% with indexation (20.8% with cess).
• Property Bought on or after July 23, 2024: No indexation; taxed at 12.5% for LTCG (holding > 24 months).

7. What about indexation for ornaments & jewellery?

A: No indexation for sales on or after July 23, 2024. LTCG (holding > 24 months) taxed at 12.5%.

8. What is the tax rate for long-term capital gains without indexation?

A: 12.5% for most assets (e.g., gold, property, bonds) held over 24 months. For listed shares/equity mutual funds, 12.5% on gains above ₹1.25 lakh annually (holding > 12 months).

9. What is the Cost Inflation Index (CII) for 2024-25?

A: The CII for FY 2024-25 is 363. For earlier years read here.

10. How does the removal of indexation affect me?

A: Without indexation, you pay tax on the full nominal gain (sale price – purchase price), increasing tax liability. For example, gold or property sold after July 23, 2024, is taxed at 12.5% on LTCG without inflation adjustment.