Glossary term
Indexation
Tax-saving adjustment that inflates the purchase cost of an asset before computing capital gains — largely removed for debt funds.
Indexation adjusts the cost of acquiring an asset upward for inflation using the Cost Inflation Index (CII) published annually by the Income Tax Department. Indexed cost = original cost × (CII of sale year ÷ CII of purchase year). The indexed cost lowers reported capital gains, reducing tax.
Post-Budget 2023, indexation no longer applies to debt mutual funds. Post-Budget 2024, indexation also removed for most equity-asset LTCG. Property remains the main asset class where indexation still meaningfully applies (with the 12.5%-without vs 20%-with election).