What Cost Indexation Was and How It Worked
Before the Union Budget 2024, long-term capital gains on physical gold were taxed at 20% with the benefit of cost indexation. Indexation allowed sellers to inflate their original purchase price by a government-published Cost Inflation Index (CII) before calculating the taxable gain — effectively reducing the gain to reflect only the appreciation above inflation.
The CII is published annually by the Income Tax Department. For example, if you bought gold in FY2015-16 (CII = 254) and sold in FY2024-25 (CII = 363), your indexed cost would be: original cost × (363 ÷ 254) = original cost × 1.429. This inflation adjustment significantly reduced the taxable gain on gold held for many years, making the effective tax rate on long-held gold much lower than the headline 20% rate.
The Budget 2024 Change and Transitional Rules
The Union Budget 2024 (effective from 23 July 2024) changed the LTCG treatment for physical gold: the rate was reduced to 12.5% but indexation was removed. For gold sold on or after 23 July 2024, no indexation is available regardless of when the gold was purchased.
However, a transitional provision was included: for assets (including gold) acquired before 23 July 2024 and sold on or after that date, the seller may choose the lower of: (a) 12.5% on non-indexed gain, or (b) 20% on indexed gain. This choice allows sellers of long-held gold to use whichever calculation produces the lower tax bill. Consulting a Chartered Accountant to determine which option is more favourable for your specific purchase year and sale price is strongly recommended for high-value transactions.
CII source: The official Cost Inflation Index is published each year by the Central Board of Direct Taxes (CBDT) and is available on the Income Tax Department website (incometax.gov.in). Always use the official CII for your calculations rather than third-party tables, which may be outdated.
Practical Example with Numbers
Gold purchased in FY 2016-17 for ₹28,000 per 10 grams. Total: 50 grams = ₹1,40,000. Sold in FY 2025-26 for ₹72,000 per 10 grams. Total: ₹3,60,000. Gain = ₹2,20,000.
Option A (12.5% without indexation): 12.5% × ₹2,20,000 = ₹27,500. Option B (20% with CII indexation): CII 2016-17 = 264; CII 2025-26 (estimated) = 363. Indexed cost = ₹1,40,000 × (363/264) = ₹1,92,500. Indexed gain = ₹3,60,000 − ₹1,92,500 = ₹1,67,500. Tax at 20% = ₹33,500. In this case, Option A (₹27,500) is lower, so the seller would choose the non-indexed route. For gold purchased at even lower historical prices, the comparison could go the other way.
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