{"id":2531,"date":"2025-07-09T16:51:56","date_gmt":"2025-07-09T11:21:56","guid":{"rendered":"https:\/\/www.caclubindia.com\/guide\/?p=2531"},"modified":"2025-07-09T16:51:59","modified_gmt":"2025-07-09T11:21:59","slug":"capital-gains-tax-indexation","status":"publish","type":"post","link":"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/","title":{"rendered":"Capital Gains Tax Indexation: When it is Required?"},"content":{"rendered":"\n<p>Capital Gains Tax in India has seen major updates, especially with the Union Budget 2024. A key aspect in calculating these taxes\u2014particularly for <strong><a href=\"https:\/\/www.caclubindia.com\/guide\/ltcg-tax-rate\/\">long-term capital gains<\/a><\/strong> (LTCG)\u2014is the principle of &#8220;<strong>Indexation<\/strong>.&#8221; Understanding this concept is essential for accurate tax computation.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\r\n<div class=\"ez-toc-title-container\">\r\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\r\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\r\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#What_is_Indexation\" >What is Indexation?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#When_is_Indexation_Applicable_Post-Budget_2024_Update\" >When is Indexation Applicable? (Post-Budget 2024 Update)<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#General_Rule_Effective_from_July_23_2024\" >General Rule (Effective from July 23, 2024)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Cases_Where_Indexation_May_Still_Apply_Transitional_Provisions\" >Cases Where Indexation May Still Apply (Transitional Provisions)<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Land_Building_Immovable_Property\" >Land &amp; Building (Immovable Property)<\/a><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#If_purchased_on_or_before_July_22_2024\" >If purchased on or before July 22, 2024:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#If_purchased_after_July_23_2024\" >If purchased after July 23, 2024:<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Debt_Mutual_Funds\" >Debt Mutual Funds<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Purchased_before_April_1_2023_held_%3E36_months\" >Purchased before April 1, 2023 (held &gt;36 months):<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Purchased_after_April_1_2023\" >Purchased after April 1, 2023:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Assets_Where_Indexation_is_NOT_Applicable\" >Assets Where Indexation is NOT Applicable<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#When_Indexation_is_NOT_Required\" >When Indexation is NOT Required?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#Formula\" >Formula:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.caclubindia.com\/guide\/capital-gains-tax-indexation\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/nav><\/div>\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Indexation\"><\/span>What is Indexation?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Indexation is a tax benefit under Indian income tax laws that adjusts the purchase price (or cost of acquisition) of a long-term capital asset to account for inflation. Since inflation reduces the real value of money over time, indexation helps by increasing the asset&#8217;s acquisition cost using the <strong><a href=\"https:\/\/www.caclubindia.com\/guide\/cii-cost-inflation-index\/\">Cost Inflation Index (CII)<\/a><\/strong>. This adjustment lowers the taxable capital gain, reducing the overall tax liability on long-term investments.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_is_Indexation_Applicable_Post-Budget_2024_Update\"><\/span>When is Indexation Applicable? (Post-Budget 2024 Update)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The applicability of indexation has undergone major changes with the recent budget. Here\u2019s a clear breakdown of when it is (or isn\u2019t) allowed:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"General_Rule_Effective_from_July_23_2024\"><\/span>General Rule (Effective from July 23, 2024)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Indexation has been removed<\/strong> for most capital assets.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Long-term capital gains (LTCG)<\/strong> will now be calculated based on the <strong>actual purchase price<\/strong> (no inflation adjustment).<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A <strong>flat 12.5% tax rate<\/strong> applies to LTCG across most asset classes (reduced from the earlier 20% with indexation).<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cases_Where_Indexation_May_Still_Apply_Transitional_Provisions\"><\/span>Cases Where Indexation May Still Apply (Transitional Provisions)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Land_Building_Immovable_Property\"><\/span>Land &amp; Building (Immovable Property)<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"If_purchased_on_or_before_July_22_2024\"><\/span>If purchased on or before July 22, 2024:<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>On sale (after July 23, 2024), you can choose:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>12.5% tax (no indexation) OR<\/strong><\/li>\n\n\n\n<li><strong>20% tax (with indexation)<\/strong><\/li>\n<\/ul>\n\n\n\n<p>Select the option that results in lower tax.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"If_purchased_after_July_23_2024\"><\/span>If purchased after July 23, 2024:<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Only <strong>12.5% tax (no indexation)<\/strong> applies.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Debt_Mutual_Funds\"><\/span>Debt Mutual Funds<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Purchased_before_April_1_2023_held_%3E36_months\"><\/span>Purchased before April 1, 2023 (held &gt;36 months):<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Previously taxed at <strong>20% with indexation<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Purchased_after_April_1_2023\"><\/span>Purchased after April 1, 2023:<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Gains treated as <strong><a href=\"https:\/\/www.caclubindia.com\/guide\/short-term-capital-gain-tax-on-shares\/\">short-term capital gains<\/a><\/strong> (taxed as per income slab) \u2013 <strong>no indexation benefit<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Assets_Where_Indexation_is_NOT_Applicable\"><\/span>Assets Where Indexation is NOT Applicable<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Listed Equity Shares &amp; Equity-Oriented Mutual Funds:<\/strong><\/li>\n<\/ul>\n\n\n\n<ol class=\"wp-block-list\">\n<li>LTCG > \u20b91.25 lakh\/year taxed at <strong>12.5% (no indexation)<\/strong>.<\/li>\n\n\n\n<li>(Exemption limit increased from \u20b91 lakh to \u20b91.25 lakh).<\/li>\n<\/ol>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Unlisted Shares (including foreign shares):<\/strong> 12.5% tax (no indexation).<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Movable Assets (gold, silver, art, etc.):<\/strong> 12.5% tax (no indexation).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_Indexation_is_NOT_Required\"><\/span>When Indexation is NOT Required?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>For <strong><a href=\"https:\/\/www.caclubindia.com\/guide\/short-term-capital-gains-tax\/\">short-term capital gains (STCG)<\/a><\/strong> (assets held \u2264 36\/24\/12 months, depending on type).<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>If the asset is <strong>tax-exempt<\/strong> (e.g., gains from selling equity shares after 1 year in India are taxed at a flat 10% without indexation).<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>If the taxpayer<strong> chooses the straight purchase price<\/strong> (but this usually results in higher taxes).<\/li>\n<\/ul>\n\n\n\n<p><strong>Cost Inflation Index (CII)<\/strong> is published annually by tax authorities (e.g., India\u2019s CBDT).<\/p>\n\n\n\n<p>Indexation reduces taxable gains by increasing the <strong>acquisition cost<\/strong>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Formula\"><\/span>Formula:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1200\" height=\"200\" src=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2025\/07\/Indexed-Cost.png\" alt=\"\" class=\"wp-image-2532\" srcset=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2025\/07\/Indexed-Cost.png 1200w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2025\/07\/Indexed-Cost-300x50.png 300w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2025\/07\/Indexed-Cost-768x128.png 768w\" sizes=\"auto, (max-width: 1200px) 100vw, 1200px\" \/><\/figure>\n\n\n\n<p>Where:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Original Cost: <\/strong>The actual cost at which the asset was purchased.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>CII (Cost Inflation Index): <\/strong>A number that is published by the government each year to reflect inflation.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>CII for Year of Sale: <\/strong>The index value in the year you sold the asset.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>CII for Year of Purchase:<\/strong> The index value in the year you purchased the asset.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong><a href=\"https:\/\/www.caclubindia.com\/guide\/cii-cost-inflation-index\/\">Also Read Cost Inflation Index For FY 2025-26 with Smarter Tax Calculations<\/a><\/strong>.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1752058742401\"><strong class=\"schema-faq-question\">When is CII used?<\/strong> <p class=\"schema-faq-answer\">CII used for calculating long-term capital gains on assets like property, shares, or mutual funds.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1752058756751\"><strong class=\"schema-faq-question\">Why to apply indexation?<\/strong> <p class=\"schema-faq-answer\">To adjust the asset\u2019s purchase cost for inflation, lowering your taxable capital gains.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1752058781280\"><strong class=\"schema-faq-question\">Who notifies the CII?<\/strong> <p class=\"schema-faq-answer\">The Central Board of Direct Taxes (CBDT) releases the CII annually.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1752058885806\"><strong class=\"schema-faq-question\">What is the CII for FY 2024-25?<\/strong> <p class=\"schema-faq-answer\">The CII for FY 2024-25 is 363.<\/p> <\/div> <\/div>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Capital Gains Tax in India has seen major updates, especially with the Union Budget 2024. A key aspect in calculating [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":2533,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[5,4],"tags":[],"class_list":["post-2531","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-capital-gains-tax","category-income-tax"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\r\n<title>Capital Gains Tax Indexation: When it is Required? - Tax Guide<\/title>\r\n<meta name=\"description\" content=\"Who needs Capital Gains Tax Indexation? 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