When a parent passes on a house or gold, two tax questions follow: "Do I pay tax on inheriting it?" and "What happens when I sell?" The first answer is reassuring — India has no inheritance tax, so receiving inherited property or gold is not taxable. The second is where the real planning sits, and where casual calculations go wrong. Here's how capital gains on inherited assets actually work for AY 2026-27.
Inheriting is tax-free; selling is the taxable event
Receiving an asset by inheritance or will triggers no income tax at the time of inheritance. The tax arises only when you sell it later — as a capital gain. And to compute that gain, the law deliberately treats you as if you had stepped into the previous owner's shoes.
Your cost is the previous owner's cost (Section 49)
Under Section 49(1), your cost of acquisition is the cost at which the previous owner acquired the asset — not its value when you inherited it. This catches many people out: you didn't "pay" anything for it, but your taxable gain is measured from what your parent (or the person before them) originally paid.
Your holding period includes theirs
Equally important: the period for which the previous owner held the asset is added to your holding period. So if your father bought a flat in 2005 and you sell it in 2026, it's treated as long-term — the holding runs from 2005, not from the date of inheritance. This almost always makes inherited assets long-term, which is the favourable treatment.
- Immovable property and gold/jewellery: long-term if the combined holding (previous owner + you) exceeds 24 months.
The 1 April 2001 fair-value option for old assets
If the previous owner acquired the asset before 1 April 2001, you may take the cost as the fair market value (FMV) as on 1 April 2001 instead of the original (often tiny) historical cost. For an ancestral house bought decades ago, this option dramatically reduces the taxable gain — but it needs a proper valuation (a registered valuer's report for property) to support it.
The rate, after the July 2024 change
For long-term gains on immovable property and gold:
- The standard long-term rate is now 12.5% without indexation.
- For land or buildings acquired before 23 July 2024, a resident individual or HUF can still choose the 20% with indexation route if it works out lower — so the 1-April-2001 FMV plus indexation can still be valuable for old inherited property. Run both and pick the lower.
Short-term gains (if the combined holding is under 24 months, which is rare for inherited assets) are taxed at your slab rate.
You can still save the gain — Sections 54 / 54F / 54EC
Inherited-asset gains qualify for the same reinvestment exemptions as any other:
- Section 54 — reinvest the gain from a residential house into another residential house.
- Section 54F — reinvest the net consideration from a non-house asset (like gold) into a residential house.
- Section 54EC — invest the gain (up to ₹50 lakh) in specified bonds within six months.
Used well, these can reduce the tax on an inherited-property sale to nil.
Common mistakes
- Using the inheritance-date value as cost instead of the previous owner's cost (or the 2001 FMV) — overstating or understating the gain.
- Starting the holding period from the date of death — losing long-term treatment.
- Missing the 1-April-2001 FMV option on ancestral property and overpaying badly.
- No valuation report to support the FMV — the claim won't stand without it.
- Forgetting TDS — a buyer of property above ₹50 lakh deducts TDS under Section 194-IA even on an inherited-property sale.
Frequently asked questions
Do I pay tax when I inherit property or gold?
No. India has no inheritance tax. Tax arises only when you sell the inherited asset, as a capital gain.
What is my cost for an inherited asset?
Under Section 49(1), it's the cost to the previous owner — or, if they acquired it before 1 April 2001, you may use the fair market value as on 1 April 2001.
Is the sale of inherited property long-term or short-term?
The previous owner's holding period is added to yours, so inherited property and gold are almost always long-term (combined holding over 24 months).
Can I avoid tax on selling inherited property?
Yes, by reinvesting under Section 54 (into a house), 54F, or 54EC (bonds up to ₹50 lakh) within the prescribed time limits.
Inherited doesn't mean simple
The gain on an inherited asset is rarely what people first calculate — the previous owner's cost, the combined holding period, the 2001 FMV option and the reinvestment exemptions all move the number, often by lakhs. Get the basis right and the tax is frequently far lower than feared.
For selling a flat you bought yourself, see our guide to property capital gains; for shares and mutual funds, see equity capital gains.
Let RDA compute your inherited-asset sale — we establish the correct cost basis, apply the 2001 FMV where it helps, and structure the reinvestment to minimise the tax.
Written by CA Rahul Dang, Founder & Practice Lead, RDA Tax Advisory Services Pvt Ltd, Baner, Pune.
