Why Indian Home Sellers Could Lose Lakhs in FY 2025-26

Now set at 376, the Cost Inflation Index (CII) for FY 2025–26 was officially released by the Central Board of Direct Taxes (CBDT). Though still used in computing taxes, how it applies has shifted dramatically. Because of changes introduced through the Finance (No. 2) Act of 2024, adjusting purchase prices for inflation is no longer automatic. Only certain sellers qualify under current rules. Previously standard across real estate transactions, this advantage now comes with limits.

This piece explores the meaning behind the updated CII figure, walks through handling today’s transitional allowances, then shifts to working out your tax burden under the revised two-path system.

Understanding the Cost Inflation Index?

Each year, the CBDT releases a number meant to track rising prices. What it does ties directly into how capital gains are computed under income tax rules. Rather than take sale price minus original cost straight up, adjustments happen using this index. Starting from that base, earlier amounts get scaled upward – accounting for how currency weakens across years. Taxable profit shrinks because of this shift, focusing only on actual increase beyond inflation’s effect. So the final charge reflects growth left after accounting for monetary decline.

CII stands at 376 for fiscal year 2025-26 – applicable to assessment year 2026-27. Though often adjusted annually, this version remains fixed until official revision occurs. Since inflation impacts cost calculations, values like these help standardize financial adjustments across tax computations.

CII Values From 2001-02 to 2025-26

Finding indexation on items bought post-April 1, 2001 means using the CII from both acquisition and disposal years. Because values shift annually, matching those specific indexes matters most. One without the other gives an incomplete picture. When sale timing differs from purchase by many years, gaps widen further. Matching each event to its correct year avoids distortion. Without accurate figures, adjustments lose precision. The process depends entirely on these two data points. Earlier or later dates change outcomes noticeably.

Financial Year CII Values

Financial Year	CII Value
2001-02	100 (Reference Point)
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
2023-24	348
2024-25	363
2025-26	376

The Game Changer: Budget 2024 Ends Indexation

That summer, a major shift arrived in how capital gains were taxed. Starting July 23, 2024, indexation relief vanished for nearly all asset types. Instead of the old method, property now faced a lower long-term rate – dropping sharply from 20% down to 12.5%. Change took effect quickly, reshaping calculations overnight.

Yet ownership stretching far into the past might face heavier consequences, so a key safeguard – called grandfathering – was put in place.

The Seller’s Decision on Older Properties

If a property sells in FY 2025–26 – or later than July 23, 2024 – whether the updated CII value of 376 applies turns solely on its acquisition date. Though timing matters most here, each case hinges on purchase timing rather than sale moment.

• Acquired prior to July 23, 2024: Either method applies. One path uses the updated rate – 12.5 percent, excluding indexation benefits. The alternative sticks to the earlier rule: 20 percent, adjusted via the CII multiplier. Whichever brings down the final amount owed stays permitted by law. Outcome depends on individual calculation.
• Acquired on or after July 23, 2024: Properties fall under a different system. Although indexation does not apply here, gains are taxed at 12.5%. The amount considered includes only sale price minus purchase cost. Because inflation adjustments have been removed, the full nominal gain counts toward tax. This rule applies strictly regardless of holding period. While older rules allowed relief, now there is none. So every rupee of increase gets taxed flat. Since method changed recently, earlier benefits no longer exist. Therefore calculation stays straightforward – just two numbers matter.

Calculating Indexed Cost for Eligible Individuals

When eligibility allows use of indexation – properties bought before July 23, 2024 – the calculation shifts slightly. This version applies a revised CII value, now set at 376. The method adjusts gain by factoring in inflation through this updated number.

$$\text{Indexed Cost of Acquisition} = \text{Purchase Price} \times \frac{\text{CII of the Year of Sale}}{\text{CII of the Year of Purchase}}$$

Example:

Back in 2005–06, Mr. Sharma paid ₹25,00,000 to get a home. By the time he handed it over in 2025–26, its value had climbed to ₹1,20,00,000.

• CII For Fiscal Year 2005 To 2006 Is 117
• CII for FY 2025-26 is 376

Calculate Indexed Cost:

Starting with twenty-five lakh rupees, multiplying by three point two one three gives eight million thirty-two thousand five hundred rupees. The fraction three seventy-six divided by one seventeen leads to that multiplier. Calculation follows standard arithmetic rules without rounding adjustments.

Calculate Capital Gains Under Old Tax Rules:

• Sale Price: ₹1,20,00,000
• Indexed Cost: Less ₹80,32,500
• Long Term Capital Gain: ₹39,67,500

Calculate tax under both options:

• Old System: Including adjustments, two-tenths of ₹39,67,500 amounted to ₹7,93,500.
• New System: Excluding indexation, begins with subtracting ₹25,00,000 from ₹1,20,00,000. The resulting amount, ₹95,00,000, faces a rate of 12.5%. That percentage applied to ₹95,00,000 gives exactly ₹11,87,500. This figure represents the total liability without adjustments for inflation.

Despite the changes, opting for the previous system brings clear benefits – Mr. Sharma pays ₹3.9 lakh less in tax under it. Using a CII value of 376 works out more advantageously for him.

Better Access Through Indexing When Relevant

True cost matters most when taxes reflect actual profit, not numbers inflated by rising prices.

• One clear effect shows up when taxes are calculated – adjusting the buy price lifts it higher, so the profit counted drops. This shift happens because past inflation gets included, changing how much is taxed on paper gains.
• Built to favor those who wait: staying invested over many years brings benefits that shield savers from rising tax thresholds caused by inflation.

Cons and Considerations

• Complexity: Now comes the trickier part – taxpayers face two options: 12.5% without indexation or 20% with it. One way doesn’t adjust for inflation; the other does. To find what works better, run numbers under each method. Each path demands separate math. Which route saves more? Only side-by-side comparison shows clearly. Filing gets tougher when choices multiply like this.
• New Purchases: For those buying property today, this advantage does not apply. Future gains won’t see the same treatment – tax on long-term capital profits stands at 12.5%, calculated strictly on real gain. What matters is timing; current purchases fall outside prior rules.
• Documentation: Tracking expenses carefully matters when adjusting older property values. For every renovation, save receipts alongside the original buying documents. Without these, updates to value might miss key details. Correct indexing relies on complete paperwork from the start. Missing a single invoice could shift outcomes noticeably.

Frequently Asked Questions

Q1: Is the CII of 376 applicable for all property sales in FY 2025-26?

Not every taxpayer can apply this rule – eligibility depends on meeting specific criteria. Only those opting into the indexation advantage may use it. The cutoff point matters: ownership must have started prior to July 23, 2024. Purchases completed from that date onward fall outside its scope.

Q2: How do I decide between the 12.5% and the 20% with indexation option?

Beyond calculation lies comparison – assessing tax duty through each approach becomes necessary. Usually, ownership stretching many years – think decades like 15 to 20 or beyond – favors the indexed path at 20%. Shorter spans, say three to five, tilt toward the flat 12.5%, where absence of indexing may trim what you owe. The timeline shapes the saving – duration quietly drives the difference.

Q3: Can I claim indexation on the cost of improvements like renovation?

A: Yes. When receipts exist for upgrades done to the property, include that amount with the original purchase price – each indexed on its own, based on the CII from the year the work occurred. That adjustment lowers the taxable profit even more.

Q4: Property purchased before 2001 rules apply?

Built prior to April 1, 2001? The greater of FMV on that date or original cost becomes your starting point. From there, adjustment happens through indexing against the 2001–02 CII, set at 100. Higher figure wins when choosing between purchase price and market worth back then.

Q5: What is the holding period for property to be considered long-term?

A property, whether residential or plot of land, counts as a long-term capital holding when ownership lasts beyond twenty-four months before being transferred. Though duration matters most, the exact timing begins at acquisition and ends on transfer day. Ownership period, not type of real estate, determines classification here. When disposal happens after two full years, tax treatment shifts accordingly. Timing rules apply uniformly regardless of urban or rural location. What defines the status lies entirely in how long it was kept.

Conclusion

Announced as part of the yearly process, the Cost Inflation Index now stands at 376 for FY 2025-26 – yet today’s tax landscape looks nothing like before. While those disposing of newly bought real estate won’t find much value here, earlier purchase dates change everything. Homes and plots obtained by countless individuals prior to July 23, 2024, still gain protection through this measure. Though automatic in nature, its effect hits unevenly across different owners.

Nowhere does it say you must accept the updated 12.5% option without question. Instead, calculate what you owe under the earlier system – this means applying the cost inflation index of 376 and facing a 20% charge – as well as under the current model, where 12.5% applies but indexation gets left out. That number, 376, could open doors to lower payments, yet works only when conditions allow and decisions align. Choice matters; simply drifting into the newer method may miss an opening.

Keep in mind that what follows serves purely to inform, not to guide financial choices. Laws tied to taxes shift now and then; personal situations differ just as much. Since rules evolve, talking with a licensed accountant or expert makes sense before acting on anything about selling real estate or completing forms.