Cost Inflation Index for FY 2025-26 notified at 376 (Notification 70/2025) for capital gains indexation

The Central Board of Direct Taxes has fixed the Cost Inflation Index (CII) for FY 2025-26 (assessment year 2026-27) at 376 through Notification No. 70/2025 dated 1 July 2025, up from 363 for FY 2024-25. That single three-digit number decides how much of your long-term capital gain on old land or a building is real profit and how much is merely inflation the tax system is willing to ignore. Get the index wrong and you either overpay tax or hand the assessing officer a reason to reopen your return under Section 143(3).

This matters more than usual in FY 2025-26 because the rules changed on 23 July 2024. Indexation was withdrawn for most long-term capital assets transferred on or after that date, yet it survives in one important pocket - resident individuals and Hindu Undivided Families (HUFs) selling land or a building acquired before 23 July 2024. For them, the CII of 376 is not a relic; it is a live number that can cut a lakh or more off the final tax bill. This tip explains exactly when 376 applies, how to use it, and the mistakes that surface in ITR scrutiny.

What the Section Says

Indexation lives in the second proviso to Section 48 of the Income-tax Act, 1961. Section 48 sets out how capital gains are computed: sale consideration minus cost of acquisition, cost of improvement, and expenses of transfer. The second proviso allows a resident, for a long-term capital asset, to replace the plain "cost of acquisition" with the indexed cost of acquisition - the original cost scaled up by the ratio of the CII of the year of transfer to the CII of the year of acquisition.

The formula is straightforward:

Indexed cost of acquisition = Cost of acquisition x (CII of year of transfer / CII of year of acquisition)

The CII itself is notified each year by the CBDT under clause (v) of the Explanation to Section 48. The base year is 2001-02 with an index of 100 (shifted from the old 1981-82 base by the Finance Act, 2017). Every subsequent year carries a higher number reflecting notified inflation. For FY 2025-26 that number is 376, meaning notified inflation since 2001-02 is 276 per cent.

Here is the recent run of official figures you will actually use:

The 23 July 2024 change matters here. The Finance (No. 2) Act, 2024 amended Section 112 so that long-term capital gains on transfers made on or after 23 July 2024 are taxed at a flat 12.5 per cent without indexation. But a grandfathering proviso was inserted: a resident individual or HUF transferring land or a building (or both) that was acquired before 23 July 2024 may compute tax as the lower of (a) 12.5 per cent without indexation, or (b) 20 per cent with indexation. Only in route (b) does the CII of 376 come into play. For companies, firms, LLPs and non-residents, indexation on such transfers is gone entirely.

Worked Example

Consider Meera, a resident individual in Pune. She bought a plot of land in FY 2012-13 for Rs 20,00,000 and sold it in FY 2025-26 for Rs 60,00,000. Because she is a resident individual selling land acquired before 23 July 2024, she can choose between the two routes under the amended Section 112. Let us run both.

Route B - 20 per cent with indexation (using CII 376):

• Indexed cost of acquisition = 20,00,000 x (376 / 200) = Rs 37,60,000
• Long-term capital gain = 60,00,000 - 37,60,000 = Rs 22,40,000
• Tax at 20 per cent = Rs 4,48,000
• Add 4 per cent health and education cess = Rs 4,65,920

Route A - 12.5 per cent without indexation:

• Long-term capital gain = 60,00,000 - 20,00,000 = Rs 40,00,000
• Tax at 12.5 per cent = Rs 5,00,000
• Add 4 per cent cess = Rs 5,20,000

Meera picks Route B and pays Rs 4,65,920, a saving of Rs 54,080 purely because the CII of 376 lifted her acquisition cost by Rs 17,60,000. The lesson: for older assets bought at prices far below today's, indexation usually wins; for recently bought assets with small notional gains, the flat 12.5 per cent route often wins. You should model both before filing, and our capital gains calculator does exactly that comparison. To see how the resulting gain slots into your overall liability, run the income tax calculator after you have the taxable figure.

Common Mistakes

Capital-gains computations are among the most frequently corrected items in CPC processing and Section 143(3) scrutiny. These are the errors that recur, each of which can be avoided by reading the CII chart carefully.

Using the wrong year's index. The numerator is always the CII of the year of transfer (376 for a sale in FY 2025-26), and the denominator is the CII of the year of acquisition. Taxpayers routinely use the year they made a payment instalment rather than the year the asset was acquired, or use the previous year's index of 363 for a sale that actually falls in FY 2025-26. Both distort the indexed cost.

Claiming indexation where it no longer exists. After 23 July 2024, indexation is unavailable for shares, equity mutual funds, gold, and every asset except land and buildings held by resident individuals and HUFs. Applying CII 376 to a debt fund or a plot sold by a partnership firm will be reversed on processing.

Forgetting the base year is 2001-02, not 1981-82. For assets acquired before 1 April 2001, you may substitute the fair market value as on 1 April 2001 as the cost, and index from CII 100. Using a 1981 valuation with a 1981 base index is a legacy error that still appears in returns.

Indexing improvement costs from the wrong year. Each improvement is indexed separately using the CII of the financial year in which that improvement was incurred. Cost of improvement incurred before 1 April 2001 is ignored altogether.

Non-residents claiming the 20 per cent route. The grandfathering option to pay 20 per cent with indexation is confined to resident individuals and HUFs. A non-resident selling Indian land pays 12.5 per cent without indexation, with tax deducted at source under Section 195.

FAQ

What is the Cost Inflation Index for FY 2025-26?

The CII for FY 2025-26 (AY 2026-27) is 376, notified by the CBDT through Notification No. 70/2025 dated 1 July 2025. It replaces the figure of 363 that applied to FY 2024-25 and is used to compute the indexed cost of acquisition under the second proviso to Section 48.

Can I still claim indexation after 23 July 2024?

Only in a narrow case. A resident individual or HUF selling land or a building acquired before 23 July 2024 may elect to pay the lower of 12.5 per cent without indexation or 20 per cent with indexation. For all other assets and all other taxpayers, indexation was withdrawn for transfers on or after 23 July 2024 by the Finance (No. 2) Act, 2024.

Which year's CII do I use in the formula?

Use the CII of the year of transfer in the numerator (376 for FY 2025-26) and the CII of the year of acquisition in the denominator. If the asset was acquired before 1 April 2001, the denominator is 100, the base-year index.

Does indexation apply to equity shares or mutual funds?

No. Listed equity and equity-oriented mutual funds are taxed under Section 112A at 12.5 per cent on long-term gains above Rs 1,25,000, without any indexation. Debt funds bought on or after 1 April 2023 are taxed at slab rates as short-term, also without indexation.

Is the base year 1981 or 2001?

The base year is 2001-02, carrying an index of 100. The Finance Act, 2017 shifted it from the earlier 1981-82 base. For assets acquired before 1 April 2001, you may adopt the fair market value on that date as the cost.

How do I index the cost of improvement?

Each improvement to a capital asset is indexed using the CII of the financial year in which the expenditure was actually incurred, not the year of acquisition. Improvements incurred before 1 April 2001 are disregarded entirely.

Where can I confirm the official CII figures?

The complete year-wise chart is published by the Income Tax Department at incometaxindia.gov.in, and the governing law is the second proviso to Section 48 of the Income-tax Act, 1961, available on indiacode.nic.in. Always cross-check the notified index before filing, because using an unverified figure is a common trigger for a Section 154 correction.