Indexation increases the cost of an asset with inflation, using the Cost Inflation Index. A higher cost means a smaller gain. For years, that was the ordinary way to tax a long-term gain on property, gold and debt. For a sale from 23 July 2024 it is no longer the ordinary way.
The ordinary long-term rate is now 12.5% of the gain worked out from the price you paid. The Cost Inflation Index still exists. The Income Tax Department’s table gives 384 for FY 2026-27. It gives 264 for FY 2016-17. The calculator uses that table. It does not let you type an index of your own.
Section 197(3) keeps one choice. A resident individual or Hindu undivided family who sells land or a building acquired before 23 July 2024 can ignore the excess of the 12.5% tax over the 20% tax on the indexed gain. In plain words, you pay whichever of those two bills is lower. The indexed gain cannot be used on this calculator to manufacture a loss to set against salary. If the indexed cost is higher than the sale price, the 20% tax is on zero, and you still compare that with the 12.5% tax on the plain gain.
Gold, shares, equity funds and gold ETFs do not get this choice. A coin bought in 2016 uses the rupees you paid in 2016. A non-resident does not get the property choice either. A shop sold by a company does not get it. The words in section 197(3) are narrow on purpose.
A worked example
A resident bought land on 1 June 2016 for ₹40,00,000 and sold it on 15 June 2026 for ₹90,00,000. Other income is ₹15,00,000, new regime. The plain gain is ₹50,00,000. The indexed cost is ₹58,18,182, using 384 over 264. The indexed gain is ₹31,81,818.
Tax at 12.5% on the plain gain is ₹6,25,000. Tax at 20% on the indexed gain is ₹6,36,364. The lower one is 12.5%, so indexation does not win this particular sale. The extra tax on the return is ₹7,25,920, because the gain sits on top of ₹15,00,000 and cess and surcharge look at the whole income. The capital gains calculator prints both taxes when the property rules are met.
Mistakes people make
- Indexing gold, shares, or an equity fund because an older article said to.
- Assuming 20% with indexation is always kinder. Compare the two bills. In the example above, 12.5% is lower.
- Using the index of the year you wanted, instead of the year of purchase and the year of sale.
- Claiming the choice on a flat bought after 23 July 2024.
- Treating a non-resident’s sale as if section 197(3) applied.
The section
Section 197(3) is the choice (the indexed comparison that used to sit with section 112). The index itself is notified under the Act. The capital gains guide and the gold guide say where it stops.
Questions
Can I index the cost of gold or shares?
No. For a sale from 23 July 2024, indexation is a choice only for land or a building bought before that date, and only for a resident individual or a Hindu undivided family. Gold, shares and equity funds use the price you paid.
What is the Cost Inflation Index for FY 2026-27?
It is 384. The index for FY 2016-17 is 264. The capital gains calculator divides the sale year’s index by the purchase year’s index and multiplies the cost.
Does indexation always cut the tax?
No. On a ₹40,00,000 house bought in June 2016 and sold for ₹90,00,000 in June 2026, tax at 12.5% is ₹6,25,000 and tax at 20% on the indexed gain is ₹6,36,364. The lower bill is 12.5%.
Sources
Figures checked 28 Oct 2026.