The Cost Inflation Index, Demystified

What that index number actually does to your tax bill, with the arithmetic spelled out.

The problem it solves

Money loses value. A property that cost ten lakh in 2001 and sells for forty lakh today has not necessarily made you thirty lakh richer in real terms. A good chunk of that rise is just prices going up generally.

Taxing you on the whole thirty lakh would mean taxing inflation. The index exists to stop that.

How it works

The government publishes one number a year. The base year, 2001 to 2002, is fixed at 100. Every later year is higher, reflecting cumulative inflation.

For 2026-27 the number is 384. That means prices generally are considered to be 384 compared with 100 in 2001, roughly 384 divided by 100 times higher.

The formula

Adjusted cost = original cost × (index in the year you sell ÷ index in the year you bought)

Two worked examples

Bought in 2001 for ten lakh, selling now. Index when bought was 100. Index now is 384. Adjusted cost is ten lakh × 384 ÷ 100. Your cost for tax purposes is several times what you paid.

Bought in 2012 for forty lakh, selling now. Index in 2012 to 2013 was 200. Adjusted cost is forty lakh × 384 ÷ 200, so roughly double what you paid.

Full table and calculator

Where people go wrong

• Using the wrong buy year. For property bought before April 2001 you use the base of 100 and the 2001 value as your cost, not the actual purchase year.
• Forgetting inherited property goes back further. You use the original owner's acquisition, not your inheritance date.
• Assuming it applies to everything. The rules differ for shares and some other assets, and have changed in recent years. Ask your accountant about anything other than property.