Income tax · Capital gains and property
How is the sale of inherited or gifted property taxed?
Short answer
Receiving property by inheritance, will, or gift from a relative is not taxed. When you sell it, the cost is the previous owner's cost, plus improvements, and the holding period includes the previous owner's period. For land or buildings bought before 1 April 2001, the fair market value on that date can be taken as cost. The usual rates and exemptions under sections 54, 54EC and 54F (now 82, 85 and 86) apply.
When you receive it
Property received by inheritance or under a will, or as a gift from a relative (spouse, parents, children, siblings, and others defined in the Act), is not taxed.
A gift of property from a non-relative is taxed as your income if its stamp duty value exceeds ₹50,000. In that case, the value taxed becomes your cost.
When you sell it
| Item | Rule |
|---|---|
| Cost | The cost to the previous owner who last bought it, plus the cost of improvements by them and by you |
| Bought before 1 April 2001 | You may use the fair market value on 1 April 2001 instead of cost. For land or buildings, it cannot exceed the stamp duty value on that date. Get a registered valuer's report |
| Holding period | Includes the previous owner's period, so inherited property is usually long-term |
| Rate | 12.5% without indexation. For land or buildings acquired before 23 July 2024, resident individuals and HUFs can choose 20% with indexation if lower. See the indexation option |
| Indexation start | Courts have held that indexation can run from the year the previous owner first held the asset; the department does not always accept this |
Exemptions
Sections 54, 54EC and 54F (now sections 82, 85 and 86) apply as for any other long-term asset. See the exemptions.
Watch out
- Gifts to a spouse or a minor child: income from the gifted asset, including capital gains on sale, is generally taxed in the hands of the person who gave the gift (section 64, now section 99).
- Several heirs: each heir is taxed on their share. Get the property mutated in the heirs' names, or record a family settlement, before the sale.
- Documents: keep the will or succession certificate, the previous owner's purchase deed, and the valuation report.
Legal basis
- Section 49, Income-tax Act, 1961, now section 73, Income-tax Act, 2025
- Section 56(2)(x) (gifts), now section 92
- Section 2(42A) (holding period), now section 2(101)
Official sources
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