TaxFinancial Glossary
Indexation
Definition
A method of adjusting the purchase price of an asset for inflation using the Cost Inflation Index (CII) published by the government. Indexation increases your cost of acquisition, thereby reducing taxable capital gains. It was available for debt funds, real estate, and gold until recent tax changes limited its applicability.
Why It Matters
Post the 2023 budget, indexation benefit on debt mutual funds was removed. However, it remains available for real estate and gold. For property held 10+ years, indexation can reduce your taxable capital gains by 50-70%, saving lakhs in tax. Always calculate gains with and without indexation to see the benefit.