If a parent or relative has left you a house or a plot, the first question is usually about the tax on inherited property. Here is the quick answer.
Quick answer: India has no inheritance tax. Receiving a house or plot by will or succession costs you nothing in tax — estate duty was abolished in 1985. You pay tax only when you sell the property. That sale is taxed as capital gains, using the previous owner’s original cost, at 12.5% for long-term gains in AY 2027-28.
So the inheritance itself is clean. The sale is where the tax office steps in. This guide explains the rules in plain words, with the new Income-tax Act, 2025 section numbers that apply from 1 April 2026.
Why does inheriting a property cost no tax?
India has no inheritance tax. The old estate duty was abolished in 1985 and has never come back. So property you receive under a will, or through succession, is not treated as your income.
The law backs this up in two places. First, inheritance is not a “transfer” for capital gains purposes. This was old Section 47(iii), and it is now Section 70 of the Income-tax Act, 2025. Second, property received under a will or by inheritance is also kept out of gift tax. That exclusion sits in the proviso to Section 56(2)(x).
In short, you do not pay tax on the day you become the owner. You also do not file a return just for receiving the property.
When does the tax start?
The tax starts when you sell. The moment you transfer the property for money, the profit is taxed as capital gains.
One more thing to remember. If you rent out the inherited property while you hold it, that rent is taxed as income from house property. If there are several heirs, each one reports their own share of the rent.
Also, the new Income-tax Act, 2025 applies from 1 April 2026. That is Tax Year 2026-27, or AY 2027-28. Sales made in FY 2025-26 still follow the old 1961 Act numbers. For a sale in FY 2026-27, use the new section numbers given in this guide.
How is the tax on inherited property calculated?
Three things decide your tax: the cost, the holding period, and the sale price.
Cost of acquisition. Your cost is the price the previous owner paid. It is not the value on the day you inherited. This rule was in old Section 49(1) and is now in Section 73 of the 2025 Act. The section also adds any cost of improvement paid by the previous owner or by you. If the previous owner’s cost cannot be found at all, Section 90(11) lets you use the fair market value on the date the property became the previous owner’s property — but document the effort you made to find the original cost first.
The 1 April 2001 option. If the property was bought before 1 April 2001, by the previous owner or by anyone earlier in the chain, you may use the fair market value as on 1 April 2001 as your cost. This was old Section 55(2)(b) and is now Section 90(9). You need a report from a registered valuer.
Holding period. The previous owner’s holding period is added to yours. This comes from old Section 2(42A), now Section 2(101)(c) of the 2025 Act. Land or building held for more than 24 months in total is long term. So almost every inherited property sale ends up as long-term capital gain.
Sale price. If the sale price is below the stamp duty value, the stamp duty value is taken as the sale price. This was Section 50C and is now Section 78. Read our full guide to capital gains tax rates and Section 54 exemption for how the rate and the stamp-duty rule work together.
What is the tax rate on inherited property in AY 2027-28?
For transfers on or after 23 July 2024, long-term capital gains on land and building are taxed at 12.5% without indexation. This was old Section 112 and is now Section 197.
There is one choice. Resident individuals and HUFs whose property was acquired before 23 July 2024 may pay the lower of:
- 12.5% without indexation, or
- 20% with indexation.
NRIs get 12.5% only. They cannot choose indexation.
Add 4% health and education cess on the tax. Surcharge on long-term capital gains is capped at 15%.
The key numbers, with sources: the 12.5% rate comes from the Finance (No. 2) Act, 2024; the Cost Inflation Index for FY 2026-27 is 384, notified by the CBDT (Notification No. 85/2026, under Section 72(8)(a) of the Income-tax Act, 2025); the 1% TDS threshold on property sales is ₹50 lakh; and an NRI may repatriate up to USD 1 million per financial year under FEMA rules.
A worked example with numbers
Father bought a house in 2010 for ₹40 lakh. He passed it on to his child. The child sells it in FY 2026-27 for ₹1.2 crore.
Step 1: Cost. The child takes the father’s original cost: ₹40 lakh. The 1 April 2001 option is not available, as the house was bought in 2010.
Step 2: Holding period. Father held it from 2010. The child adds that period. It is well over 24 months, so the gain is long term.
Step 3: Gain. ₹1,20,00,000 minus ₹40,00,000 = ₹80,00,000.
Step 4: Tax at 12.5%. 12.5% of ₹80,00,000 = ₹10,00,000.
Step 5: Cess. 4% of ₹10,00,000 = ₹40,000.
Total tax: ₹10,40,000.
Now the indexation choice. The property was bought before 23 July 2024, so a resident individual may compare. The Cost Inflation Index for FY 2010-11 is 167 and for FY 2026-27 it is 384 (both notified by the CBDT). Indexed cost = ₹40,00,000 × 384 / 167 = ₹91,97,605.
Gain with indexation = ₹1,20,00,000 minus ₹91,97,605 = ₹28,02,395. Tax at 20% = ₹5,60,479. Add 4% cess of ₹22,419. Total = ₹5,82,898.
In this case, 20% with indexation is cheaper by about ₹4.57 lakh. Always work out both and pick the lower one — for property bought long ago at a low price, indexation often wins.
How do multiple heirs share the tax?
Each heir pays tax only on their own share of the gain. The gain is split in proportion to ownership.
Say three siblings inherit a house in equal shares and sell it together for ₹1.2 crore. The total gain is ₹80 lakh, so each sibling reports one-third — about ₹26.67 lakh — in their own return, and pays tax on that share alone. A sibling who does not sell pays nothing until they sell their own share.
Keep the partition or succession document safe. The buyer and the tax office will ask for it.
How can you save tax on the sale?
You can reinvest and reduce or remove the gain.
Section 54 (now Section 82). Buy a house within 2 years, or construct one within 3 years, from the sale of a residential house. Read the full rules in our Section 54 exemption guide.
Section 54F (now Section 86). Similar relief when you sell a long-term asset other than a residential house and buy one house — but you must not own more than one house (other than the new one) on the date of transfer.
Section 54EC (now Section 85). Invest in REC, PFC, IRFC or HUDCO bonds within 6 months. This is capped at ₹50 lakh per financial year. See our Section 54EC bonds guide for the current issuers and interest rate.
Miss the deadline and the exemption is lost. Set a reminder on the day the sale money reaches your bank.
What about TDS, stamp duty value and NRI rules?
TDS by the buyer. If the sale consideration is ₹50 lakh or more, the buyer deducts 1% TDS. This was old Section 194-IA and is now Section 393(1). The buyer files Form 26QB.
Stamp duty value. If your sale price is below the stamp duty value, the stamp duty value is treated as the sale price. This was Section 50C and is now Section 78.
NRI sellers. If the seller is an NRI, the buyer deducts TDS on the full sale consideration under old Section 195, now Section 393(2). This is often far more than the actual tax. The NRI can apply for a lower or nil TDS certificate: Form 13 under the 1961 Act, or Form 128 from Tax Year 2026-27. Our NRI property sale TDS guide explains the rates and the refund route.
An NRI may repatriate up to USD 1 million per financial year after paying taxes.
Common mistakes to avoid
- Thinking inheritance itself is taxable. It is not.
- Using the date-of-inheritance value as your cost. Use the previous owner’s original cost.
- Forgetting to add the previous owner’s holding period.
- Ignoring the 1 April 2001 option for older property, and skipping the valuer’s report.
- Not comparing 12.5% without indexation against 20% with indexation, when you are eligible.
- Missing the 6-month deadline for 54EC bonds, or investing above the ₹50 lakh cap.
- Not reporting rent earned while you held the property.
- Missing the ITR due date. For AY 2027-28, it is 31 July 2027. Report the gain in Schedule CG. See our ITR filing due dates for AY 2027-28 for the full calendar.
FAQ
Do I pay tax when I inherit a property, or only when I sell it?
Only when you sell. Receiving property by will or succession is not taxable income. The profit on sale is taxed as capital gains.
Is there inheritance tax in India?
No. Estate duty was abolished in 1985 and has not returned. So there is no separate tax for receiving property from a deceased person.
What is the cost of acquisition for inherited property?
It is the price the previous owner originally paid. It is not the market value on the date you inherited. This rule was old Section 49(1) and is now Section 73.
What if the property was bought before 1 April 2001?
You may use the fair market value as on 1 April 2001 as your cost instead. This was old Section 55(2)(b) and is now Section 90(9). You need a registered valuer’s report.
How is the tax split between multiple heirs?
Each heir pays tax only on their own share of the gain. The split follows the ownership share shown in the succession or partition document.
Can an NRI sell inherited property in India and take the money abroad?
Yes, after paying taxes. The buyer deducts TDS on the full sale consideration under old Section 195, now Section 393(2). You can apply for a lower or nil TDS certificate, and repatriate up to USD 1 million per financial year.
Official sources
- Income Tax Department — e-Filing portal — forms, CII notifications and TDS details
- Income Tax Department — Tax Information — Acts, rules and circulars
- India Code — Income-tax Act, 2025 — bare text of the new Act, including Sections 70, 73, 90 and 197
Reviewed by Asuthod Rathod, CA
Last updated: 14 November 2026
Disclaimer: This article is general information, not tax advice. Tax laws change often. Check the official portals above or talk to a chartered accountant before you sign a sale deed.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.