Debt Fund Indexation Calculator
2,66,912
6,618
30,000
Tax Saved due to Indexation: ₹23,382
Indexation adjusts the purchase price of your investment for inflation using government Cost Inflation Index (CII) figures. This increases your cost of acquisition and reduces your taxable capital gains. Debt mutual funds purchased **before April 1, 2023**, benefit from this 20% tax rate with indexation when held for more than 36 months, saving substantial tax compared to standard slab rates.
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Cost Inflation Indexation Benefit
Adjusts original purchase price for historical inflation to reduce capital gains tax on grandfathered debt funds.
Worked Example: ₹2 Lakhs debt fund invested in FY 2017-18, sold in FY 2024-25 for ₹3 Lakhs
Debt Indexation: Maximizing Tax Efficiency on Legacy Assets
Alok had ₹2 Lakhs in a debt mutual fund purchased in 2018. In 2024, he sold it for ₹3 Lakhs, realizing a gain of ₹1 Lakh. Since he fell in the 30% tax slab, he feared a ₹30,000 tax bill under the current slab taxation rules. However, his advisor noted his units were grandfathered.
Because Alok purchased his debt fund before April 1, 2023, he qualified for indexation benefits. Using the Cost Inflation Index (CII) values (280 for FY 18-19 and 363 for FY 24-25), his indexed purchase price was adjusted to ₹2,59,285. His taxable capital gain dropped from ₹1 Lakh to ₹40,715. At the 20% LTCG rate with indexation, his tax was just ₹8,143 — saving him ₹21,857.
Indexation protects your long-term capital gains from being taxed on inflation-driven nominal values. While this benefit was removed for debt funds bought after April 1, 2023, legacy assets still qualify.
If you hold legacy debt funds purchased before the rule change, preserve them. Redeeming them triggers indexation benefits that can substantially lower your effective tax rate compared to standard fixed deposits.
Frequently Asked Questions
What is indexation in debt mutual funds?
Indexation adjusts the purchase price of your investment for inflation using the Cost Inflation Index (CII) issued by the government, reducing your taxable gains.
Do debt funds still get indexation benefits?
Only grandfathered debt funds purchased before April 1, 2023, qualify for indexation benefits if held for more than 36 months. New debt fund purchases are taxed at slab rates.
How is indexed cost calculated?
Indexed Cost = Purchase Price * (CII of Sale Year / CII of Purchase Year). Tax is then charged at 20% on the difference between Sale Price and Indexed Cost.
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