This makes the annual CII notification relevant for taxpayers planning to sell eligible properties during FY2026-27.
Who can still claim indexation?
The option to choose between the old and new capital gains tax regimes is available only in specific cases.
According to her, taxpayers falling under these transitional provisions can calculate their tax under both methods and choose the one that results in a lower liability. For most other long-term capital assets, the post-Budget framework applies without indexation.
The Cost Inflation Index helps adjust the purchase price of an asset for inflation. A higher indexed cost reduces the taxable capital gain, which can lower the tax payable under the old regime.
When is indexation likely to be more beneficial?
The choice between the two tax regimes should not be based solely on the tax rate.
"The decision should be based on a direct tax calculation, not on the rate alone. If the asset was held for a long period and inflation has materially increased the cost base, indexation can reduce taxable gains enough to offset the higher rate. If the holding period is shorter or the indexed cost increase is limited, the lower 12.5% rate without indexation may be better," Anandan said.
She added that taxpayers should calculate their liability under both methods before filing their income tax return.
Indexation typically offers a greater advantage for properties purchased many years ago. As inflation pushes up the indexed acquisition cost over time, the taxable capital gain can reduce significantly.
"For example, if a property was bought decades ago and sold today, the indexed cost may be much higher than the original purchase price, which lowers the taxable gain substantially. That is why indexation often helps the most where the asset has been held for many years and the original purchase price is far below the current value," Anandan explained.
What documents should property sellers keep?
Taxpayers intending to claim indexation should retain all documents related to the property's acquisition and sale.
These include the purchase deed, sale deed, payment proofs, allotment letter, brokerage records, and documents relating to capital improvements or renovation expenses. In the case of inherited or gifted properties, documents establishing the previous owner's acquisition date and cost are also important.
"They should then compute tax under both methods and choose the more beneficial one. The capital gains should be reported in the correct schedule of the ITR, with the sale consideration, acquisition cost, holding details and exemption claims disclosed accurately. Keeping all supporting documents ready before filing reduces the risk of mismatch or notice later," Anandan said.