Explained: Cost Inflation Index for FY27 raised to 384; What it means for LTCG tax

The Income Tax Department has increased the Cost Inflation Index (CII) for the current financial year, notifying a value of 384 for FY26-27, up from 376 in FY25-26. The revised index, notified by the Central Board of Direct Taxes (CBDT), will be used to calculate inflation-adjusted long-term capital gains (LTCG) arising from the sale of eligible capital assets such as immovable property, jewellery, and certain securities where indexation benefits continue to apply. 

The annual revision of the CII is an important development for taxpayers because it helps account for the impact of inflation while calculating taxable capital gains. By adjusting the purchase price of an asset for inflation, the index ensures that tax is levied only on the real appreciation in value rather than on gains that are merely the result of rising prices over time. 

What is the Cost Inflation Index? 

The Cost Inflation Index is notified every year under the Income-tax Act, 1961. It is used to determine the "indexed cost of acquisition" of a capital asset while calculating long-term capital gains. Indexation increases the acquisition cost of an asset in line with inflation, thereby reducing the taxable gain in cases where indexation benefits are available under the tax law. 

Why has the CII been revised? 

The CBDT updates the Cost Inflation Index annually to reflect changes in inflation. For FY26-27, the index has been increased to 384 from 376 in the previous fiscal, enabling taxpayers to use the revised figure while computing long-term capital gains during the current financial year. 

Which assets are covered? 

The Cost Inflation Index is used for calculating long-term capital gains on eligible capital assets, including immovable property, jewellery, and certain securities, wherever indexation benefits continue under the prevailing tax framework. The revised index helps taxpayers arrive at the inflation-adjusted purchase cost of these assets before calculating their taxable gains. 

When does an asset qualify as a long-term capital asset? 

The holding period required to qualify for long-term capital gains depends on the nature of the asset. Immovable property and unlisted shares generally qualify after being held for more than 24 months, while listed securities become long-term assets after a holding period of more than 12 months. For most other capital assets, the minimum holding period is more than 36 months. 

What it means for taxpayers? 

With the Cost Inflation Index rising to 384 for FY26-27, taxpayers selling eligible long-term capital assets can use the revised index to calculate the inflation-adjusted cost of acquisition. This, in turn, helps determine the actual taxable long-term capital gains and ensures that inflation is appropriately factored into the tax computation.