November 04, 2025
4 mins read
Inflation is something we all experience, whether we think about it or not. The money in your wallet today will not buy the same things ten years later. Prices rise. That’s inflation. And when you deal with assets like land, bonds, or shares, this matters.
Let me give you a simple picture. Imagine buying a plot of land 10 years ago for ₹5 lakhs. Today, you sell it for ₹15 lakhs. On paper, the gain looks like ₹10 lakhs. But wait. Inflation has eroded part of that increase. The Cost Inflation Index (CII) can be used to adjust this number so that you are not taxing what is just inflation, not real profit.
The CII is how the government measures the effects of inflation on your long-term capital gains, so you can pay tax on what you get above inflation.
Note: In July 2024 the government removed indexation benefits for newly acquired long-term capital assets. You can still choose between paying tax with indexation at 20% or without indexation at 12.5% for land and buildings acquired before 23rd July 2024.
Why does the government bother with CII? Without it, you could be paying more tax than you should. Inflation often makes gains look bigger than they are. CII corrects that by adjusting the original purchase price of the asset.
Take our land example again. Without indexation, tax applies on the full ₹15 lakhs. With indexation, the adjusted value may bring the taxable gain closer to ₹10 lakhs. The difference can feel huge when you calculate your final liability.
Financial Year | Cost Inflation Index (CII) |
2001‑02 (Base Year) | 100 |
2002-03 | 105 |
2003-04 | 109 |
2004-05 | 113 |
2005-06 | 117 |
2006-07 | 122 |
2007-08 | 129 |
2008-09 | 137 |
2009-10 | 148 |
2010-11 | 167 |
2011-12 | 184 |
2012-13 | 200 |
2013-14 | 220 |
2014-15 | 240 |
2015-16 | 254 |
2016-17 | 264 |
2017-18 | 272 |
2018-19 | 280 |
2019-20 | 289 |
2020-21 | 301 |
2021-22 | 317 |
2022-23 | 331 |
Financial Year | Cost Inflation Index (CII) |
2023-24 | 348 |
2024-25 | 363 |
2025-26 | 376 |
The base year is like the starting line. It is the year from which inflation is measured for tax purposes. Originally, India used 1981 as the base year. Later, it was shifted to 2001 because records before 1981 were hard to track.
This change simplified things for taxpayers. From 2001 onwards, inflation adjustments became easier and more accurate. If you are calculating tax today, the government expects you to begin with 2001 as the reference year.
Think of indexation as a way to balance out time. Assets, such as shares, bonds, or property, are recorded in books at their purchase value. That number stays fixed, even though inflation steadily climbs year after year.
When you sell, it looks like you made a huge profit. But in reality, part of that increase is only due to rising prices, not actual growth. CII inflates the purchase price using official figures. This lowers the visible profit and the tax owed. In short, you get taxed on real earnings, not just the effect of inflation.
Here are a few quick points to remember about CII in India:
It measures inflation and adjusts capital gains for fair tax calculation.
The current base year is 2001.
The Central Board of Direct Taxes (CBDT) updates the index each year.
If you inherit an asset, CII applies from when the previous owner bought it.
From April 2023, debt mutual funds lost the indexation benefit.
For assets bought on or after 23rd July 2024, no indexation applies. Properties bought earlier can be taxed at 12.5% (without indexation) or 20% (with indexation).
Indexation works by pushing up the original purchase cost of your asset to account for inflation. This reduces the taxable profit and lowers the long-term capital gains (LTCG) tax.
For example, suppose you bought a building many years ago. Using the CII, the cost is inflated to match the year of sale. Your profit appears lower, and so does your tax bill. It is a fairer way to handle gains that exist mostly because of rising prices.
The Cost Inflation Index (CII) is not just a technical term buried in the tax system. It is a mechanism to make sure taxpayers are not overcharged when inflation is the real reason prices rise.
By adjusting purchase costs, CII ensures taxation is fairer and more grounded in reality. Even though the rules are changing for future assets, knowing how CII works helps you make better financial choices today.
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CII, or cost inflation index, is a tool used by the government of India to calculate inflation. It is used to adjust the LTCG tax liability of the taxpayers.
After the indexation benefit, the LTCG tax liability is adjusted based on the actual profit on the land and building by deducting inflation. So, both profit and tax liability are reduced.
The current base year for CII calculation is 2002. Earlier it was 1st April 1981.
The indexed cost of acquisition is calculated using the formula: (Purchase Price × CII of Sale Year) ÷ CII of Purchase Year, which adjusts the cost for inflation.
You can find the latest Cost Inflation Index (CII) values on the Income Tax Department website, CBDT notifications, or trusted financial portals.
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