What is indexation?
Also called: indexed cost of acquisition, Cost Inflation Index, CII, inflation adjustment
Indexation raises a property's purchase cost for inflation using the Cost Inflation Index, shrinking the taxable gain. It now survives only as an option: resident individuals and HUFs selling property bought before 23 July 2024 can pay 20% with indexation instead of 12.5% without.
The Cost Inflation Index is notified by the CBDT each year, with 2001-02 as the base year at 100. The formula is purchase cost multiplied by the CII of the year of sale, divided by the CII of the year of purchase. A flat bought in 2012-13 (CII 200) and sold in 2025-26 (CII 376) has its cost multiplied by 1.88.
The Finance (No. 2) Act, 2024 took indexation away for transfers from 23 July 2024 and cut the rate from 20% to 12.5%. After objections from homeowners, a grandfathering option was added for land and buildings bought before that date, and it survived into the Income-tax Act, 2025. You work out the tax both ways and pay the lower figure. NRIs, companies and other entities don't get the choice.
Which option wins depends on how fast the property appreciated. When prices rose slowly, as in many Mumbai and Delhi suburbs across the 2010s, the indexed route usually saves money. When a plot on a city's edge tripled in value, the 12.5% flat rate often comes out ahead. There's no rule of thumb that holds for every case, so do the sum.
One more restriction applies: if the indexed calculation produces a loss, you can't use that loss against other gains when choosing the 20% route. The option only reduces tax on this sale.
A Navi Mumbai flat bought in 2012-13 for ₹40 lakh was sold in 2025-26 for ₹1.2 crore. Indexed cost is ₹75.2 lakh, so tax at 20% on ₹44.8 lakh is about ₹8.96 lakh, against ₹10 lakh at 12.5% on the unindexed ₹80 lakh gain; the seller picks indexation.
Sellers apply indexation to the whole cost, including a renovation done years later. Each improvement is indexed from its own year, and improvements made before April 2001 aren't counted at all.
Questions people ask about indexation
Where can I find the Cost Inflation Index for each year?
The Income Tax Department publishes the full CII table on its website, updated each year when the CBDT notifies the new figure.
Does indexation apply to property I inherited?
Yes, if you choose that option. The previous owner's cost is used, and courts including the Bombay High Court have allowed indexation from the year the previous owner acquired it.