Moment guide · FY 2026-27

I'm selling property I inherited

What capital gains tax applies when I sell inherited property in India?

Sec 49(1)Sec 2(42A)Sec 55(2)(b)Sec 112AVerified 2026-08-11

Inheriting property itself is tax-free in India. The tax arises only when you sell it. Cost of acquisition = original owner's cost u/s 49(1) (or FMV on 1-Apr-2001 if acquired before that date). Holding period includes the predecessor's period — so ancestral property typically qualifies for LTCG at 12.5%. If selling after Jul 2024, no indexation applies.

Your legitimate options

Every route the statute actually gives you — with its condition, cap and deadline.

Route	Condition	Cap / deadline
Property inherited and held > 24 months before sale	Combined holding period (predecessor + own) > 24 months	LTCG at 12.5% (no indexation) for sales after 23-Jul-2024; for pre-Jul-2024 sales, 20% with indexation OR 12.5% without
Property inherited and held ≤ 24 months	Combined holding period ≤ 24 months	STCG at slab rate (no special rate for residential property STCG)
Reinvest in new house u/s 54	LTCG; buy/construct new residential property	Invest LTCG amount within 2 years (buy) or 3 years (construct); max ₹10Cr exemption
Invest in 54EC bonds	LTCG; within 6 months of sale	₹50L cap; REC/NHAI bonds; 5-year lock-in; no interest deduction on reinvested amount
Multiple heirs	Property inherited jointly	Each heir reports their proportionate share of LTCG/STCG in their own ITR

The #1 trap

The inherited property itself attracts no tax — tax arises only on sale. Many mistakenly add 'gift tax on inheritance' which does not exist in India.

The decision path

Follow it top to bottom — the first condition that matches is your answer.

IF inherited property acquired before 1 Apr 2001 → use FMV on 1 Apr 2001 as cost (with valuer certificate) u/s 55(2)(b)
IF inherited from predecessor who held since, say, 2005 → include their holding period; total period likely >24 months → LTCG
IF sale after 23 Jul 2024 → LTCG at 12.5%, NO indexation; for pre-Jul 2024 sales: 20% with indexation OR 12.5% without
IF multiple heirs → each files their proportionate LTCG; no single heir claims entire exemption
IF planning to reinvest → u/s 54 (new house) within 2yr/3yr or 54EC bonds within 6 months

Worked example

Deepa, 45, selling her father's flat inherited in 2020

Deepa inherits her father's Mumbai flat after his death in 2020. Her father purchased it in 1998 for ₹8 lakh. FMV on 1 Apr 2001 = ₹22 lakh (backed by a registered valuer's certificate). Deepa sells the flat in January 2027 for ₹1.2 crore. Cost of acquisition: u/s 49(1), Deepa inherits her father's cost — but since the property was acquired before 1 Apr 2001, cost = FMV on 1 Apr 2001 = ₹22 lakh u/s 55(2)(b). Holding period: Her father bought in 1998. Deepa's period includes the predecessor's — total holding from 1998 to 2027 = 29 years. Clearly LTCG. LTCG (post-Jul 2024 rule): Sale price ₹1.2Cr minus cost ₹22L = LTCG of ₹98 lakh. No indexation from Jul 23, 2024 onwards. Tax at 12.5% = ₹12.25 lakh. If Deepa reinvests ₹98 lakh in a new residential flat within 2 years (u/s 54), the entire LTCG is exempt. She need not reinvest the full ₹1.2Cr — only the LTCG amount. ₹1.02Cr is freed up for other use. If she cannot find a flat: deposit the ₹98L in a Capital Gains Account Scheme (CGAS) at a nationalised bank before July 31 (filing date) to preserve the exemption while she searches for a property. A quick call with us dials in the final figure.

Questions people actually ask

Do I pay any tax when I receive the inherited property?

No. Inheritance from a deceased relative is exempt from any tax in India. Tax arises only when you sell the inherited property.

How do I prove the cost of acquisition if the original purchase was in the 1970s and records are lost?

If acquired before 1 April 2001, you can use the fair market value on 1 Apr 2001 as cost u/s 55(2)(b). This requires a valuation report from a registered valuer — common practice for old properties.

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Sections: 49(1), 2(42A), 55(2)(b), 112A · Last verified 2026-08-11 · Reviewed by Harun Raaj & Associates, Chartered Accountants. Every figure cites the Income-tax Act, 1961 (with ITA 2025 mapping via our section index).