The Cost Inflation Index, or CII, provides for adjusting the purchase price of assets for inflation when calculating long-term capital gains tax after these assets are sold to the next buyer.

It benefits taxpayers selling assets such as property and land by lowering the taxable profit as the original price at which the asset was bought becomes higher after making an adjustment for the inflation that takes place over the years.

It is aimed to provide a more realistic valuation of the capital gain made on the sale as the original price at which these properties were bought is very low. 

However, following changes made in the Finance Act, 2024, the indexation benefit using CII has been discontinued for most long-term capital assets transferred on or after July 23, 2024. Instead, a flat tax rate of 12.5 per cent applies without indexation.

The CII remains relevant only in a limited grandfathered case: resident individuals and Hindu Undivided Families (HUFs) selling land or buildings acquired before July 23, 2024, can choose between the new tax rate of 12.5 per cent without indexation and the old rate of 20 per cent with indexation, whichever results in a lower tax liability.

Meanwhile, India’s net direct tax collections recorded a robust 16.4 per cent year-on-year growth to Rs 6.51 lakh crore (as of July 13) in the current financial year, driven by higher corporate tax, non-corporate tax and securities transaction tax (STT) collections, according to CBDT figures.

Net corporate tax collection grew over 22 per cent to around Rs 2.40 lakh crore, while net non-corporate tax collection recorded an increase of around 12 per cent to Rs 3.85 lakh crore. Securities Transaction Tax (STT) jumped over 44 per cent to over Rs 26,000 crore, the figures showed.