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Cost Inflation Index

Purchase Year

Purchase Value (Rs.)

Sale Year

Sale Value (Rs.)

Tax Rate (%)

Capital Gain Amount

Capital Gain Tax Rate


(indexed tax rate applicaple)

(custom tax rate applicaple)

Capital Gain Tax

How are capital gains calculated with indexation?

Capital gains refer to an increase in the value of an investment over a specific timeframe. If the NAV of a debt fund was Rs.10 last year and today it stands at Rs.11, therefore, the value of your investment has appreciated, and this is called capital gains. Here, your investment would yield a capital gain of Rs. 1 per unit if you redeem the fund. In other words, a capital gain is a difference between the purchase price and the sale price of a debt fund. However, in case the gains are long-term in nature (holding period of more than 3 years), capital gains are arrived after indexing the purchase price of the investment.
The long-term capital gains on debt funds are taxable at 20% after allowing the benefit of indexation.
With the help of indexation, you will be able to lower your long-term capital gains on debt funds and thus bring down your taxable income. Indexation is the reason why debt funds are considered an excellent fixed-income investment option when compared to fixed deposits. Indexation makes the investment in debt funds much attractive.
Example - Let's say you invested in a debt fund in July 2016. Your investment amount was Rs.10,000 and you bought the units at a NAV of Rs.10. 6 years later, you redeemed your investments in September 2022 at a NAV of Rs.20. Hence, when you sold your investments, the value of your investments was Rs.20,000. Therefore, you made capital gains worth Rs.10,000.
However, you need not pay tax on this entire gain amount of Rs.10,000 as your holding period was more than 3 years and thus you will get the benefit of indexation to reduce the value of your long-term capital gains. To arrive at the Indexed Cost of Acquisition, you have to use the following formula:
Indexed Cost of Acquisition = Original cost of acquisition * (CII of the year of sale/CII of year of purchase)
In the example mentioned above, the indexed cost of acquisition will be Rs. 12,538, i.e., (10,000 * 331/264).
Hence, instead of Rs.10,000, your capital gains will now be Rs.7,462, i.e. (Rs.20,000 - Rs.12,538).
Using indexation, you have managed to pay tax on only Rs.7,462 instead of Rs 10,000. The benefit of indexation works best when your holding period is longer. This is how indexation benefit helps you to save tax on long-term capital gains from debt mutual funds and enhance your returns.

Notified Cost Inflation Index Under Section 48, Explanation (V)

As per Notification no. 62/2022, dated 14-06-2022 following table should be used for the Cost Inflation Index :-

Sl. No Financial Year Cost Inflation Index
1 2001-02 100
2 2002-03 105
3 2003-04 109
4 2004-05 113
5 2005-06 117
6 2006-07 122
7 2007-08 129
8 2008-09 137
9 2009-10 148
10 2010-11 167
11 2011-12 184
12 2012-13 200
13 2013-14 220
14 2014-15 240
15 2015-16 254
16 2016-17 264
17 2017-18 272
18 2018-19 280
19 2019-20 289
20 2020-21 301
21 2021-22 317
22 2022-23 331

Disclaimer: We have gathered all the data, information, statistics from the sources believed to be highly reliable and true. All necessary precautions have been taken to avoid any error, lapse or insufficiency; however, no representations or warranties are made (express or implied) as to the reliability, accuracy or completeness of such information. We cannot be held liable for any loss arising directly or indirectly from the use of, or any action taken in on, any information appearing herein. The user is advised to verify the contents of the report independently.

Returns less than 1 year are in absolute (%) and greater than 1 year are compounded annualised (CAGR %). SIP returns are shown in XIRR (%).

The Risk Level of any of the schemes must always be commensurate with the risk profile, investment objective or financial goals of the investor concerned. Mutual Fund Distributors (MFDs) or Registered Investment Advisors (RIAs) should assess the risk profile and investment needs of individual investors into consideration and make scheme(s) or asset allocation recommendations accordingly.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance may or may not be sustained in the future. Investors should always invest according to their risk profile and consult with their mutual fund distributors or financial advisor before investing.