The concept of indexation is based on the rationale that an asset worth Rs. 1 lakh today may not have the same value in the future due to inflation. Indexation refers to the process of taking into consideration the changes in inflation levels from the time of purchasing an asset or investment to the time of sale. It is used to adjust the cost of an asset in order to accommodate the changes in purchasing power. Indexation can help in reducing tax obligations as it brings down the value of long-term capital gains.