Tax on Property: Important news for those buying and selling property; the Income Tax Department has shared a way to save money..

There is significant news from the Income Tax Department for those buying and selling property. The Cost Inflation Index (CII)—a crucial factor for calculating capital gains tax on such transactions—has been determined. Taxes on profits from the sale of assets (such as property) are levied based on this CII. Understanding the importance and functioning of the CII is essential.

The Income Tax Department has raised the Cost Inflation Index (CII) for the current financial year to calculate long-term capital gains arising from the sale of immovable property, securities, and jewelry. Taxpayers use the CII to calculate profits from the sale of capital assets after adjusting for the impact of inflation. This allows for a reduction in capital gains tax liability.

**What is the CII for the current financial year?**
According to a notification by the Central Board of Direct Taxes (CBDT), the Cost Inflation Index for the financial year 2026-27 has been set at 384. For the financial year 2025-26, the index stood at 376. Rajat Mohan, Managing Partner at AMRG Global, noted that the annual CII report demonstrates the government's commitment to maintaining a fair system for inflation adjustment in areas where the benefit of indexation continues under the new tax regime.

**How ​​does this benefit taxpayers?**
He stated that this provides clarity to taxpayers, assessors, and tax experts regarding the calculation of indexed costs and reduces disputes related to interpretation. The CII notification is issued annually under the Income Tax Act, 1961. It is used to determine the 'indexed cost of acquisition' when calculating capital gains upon the sale of a capital asset.

How Capital Gains Tax is Determined
Generally, an asset must be held for more than 36 months to qualify as a ‘long-term capital asset.’ However, this holding period is 24 months for immovable property and unlisted shares, and 12 months for listed securities. Since the prices of goods rise over time while the purchasing power of currency declines, the Cost Inflation Index (CII) is used to determine the inflation-adjusted purchase price of assets, enabling an accurate calculation of taxable Long-Term Capital Gains (LTCG).

How the Benefit of Indexation Works
Suppose you purchased a property for ₹50 lakh in 2010 and sold it for ₹1 crore in 2026. At first glance, it appears you made a profit of ₹50 lakh; however, the Income Tax Department allows you to adjust for inflation. The CII is issued specifically to measure this inflation. The tax on the profit from this transaction is calculated using the CII. The CII for the year 2010 was 167, whereas the CII for the current financial year is 384. Consequently, after applying indexation, the adjusted value of the property would be ₹1.26 crore; since the property was sold for ₹1 crore, the Long-Term Capital Gains tax liability would be zero.

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