Indexed cost of acquisition adjusts historical cost by Cost Inflation Index to compute taxable capital gains.

The law sets an indexation-based adjustment for capital gains where the indexed cost of acquisition equals A x B / C (A = cost of acquisition, B = Cost Inflation Index in the year of transfer, C = Cost Inflation Index for the year following acquisition or for the year beginning 1 April 2000, whichever is later). The indexed cost of improvement is computed by the same formula with A as the cost of improvement and C tied to the year following the improvement or the 1 April 2000 base-year floor.

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