Also called: Cost Inflation Index, CII, Indexed cost
Raising the purchase cost of an asset for inflation, using the government's Cost Inflation Index, before working out the capital gain. It lowers the taxable gain.
How it works and what to check
Indexed cost = purchase cost × index for the year of sale ÷ index for the year of purchase (or 2001-02, for property bought earlier). The tax department notifies the index each year.
For property, indexation now survives only as an option for resident individuals and HUFs selling land or buildings bought before 23 July 2024, who can pay 20% on the indexed gain instead of 12.5% on the plain gain.