Indexation works on the concept that as the inflation erodes the returns from the investment; you should be made to pay tax only on the actual profit made on the investment. To help in the calculation of the actual profit earned on the investment, the government has prepared an index known as the cost of the inflation index.
Inflation is a major destroyer of wealth, as it greatly affects your returns. To beat inflation, it is important to benefit from the power of indexing. It lets you reduce your tax liability after taking into account the inflation.
Choosing tax-efficient investment options like Mutual Funds are a great way to beat inflation.