One often asked question when someone inherits a house, land, or any other valuable asset is regarding capital gains tax on inheritance.
Many worry whether they will have to pay taxes just because they inherited a good or asset from a loved one.
Let’s see how this operates in India.
Describes inheritance.
Inheritance is receiving something worthwhile from someone upon their death.
It might be anything: a house, land, jewelry, or cash.
Parents or grandparents passing on this often to their children or other family members.
Should you inherit something, do you pay taxes?
The bright news is that inheritance is not taxed in India.
Should you inherit a property or asset from a deceased relative, you are exempt from paying any taxes specifically for that.
This alters, though, when you choose to sell the inherited asset or real estate.
When should one pay capital gains tax?
Once you have the asset, you pay capital gains tax on inheritance rather differently.
You pay it solely upon asset sale.
The profit you get from the sale is known as a capital gain, thus tax is relevant.
How Does Capital Gain Calculated?
Selling an inherited property results in a capital gain computed as follows:
- The amount you get upon selling an asset is known as its sales price.
- The cost of acquisition is the price the original owner—that person who handed it to you—paid when she bought it.
- Indexed cost is the cost changed for inflation. It somewhat lowers the taxable value.
- The capital gain determines the variation between the indexed cost and the selling price.
- Then, this sum determines the capital gains tax on inheritance.
Sample to Help One Understand Better
For ₹5 lakhs, your grandfather paid for a house in 1995.
2020 saw your inheritance of it.
In 2025 you sell it for ₹80 lakhs.
Inheriting the house in 2020 will not result in tax payer obligations.
But should you sell it in 2025, the profit will be subject to capital gains tax on inheritance.
Given inflation, the taxable gain using the indexed cost will be far less than ₹75 lakhs (₹80L – ₹5L).
Key Points to Recall
- Not taxes at the inheritance time
- Tax only comes due upon asset sales.
- Indexed cost lowers your tax load.
- Section 54 grants exemption if you purchase another house with the money.
Taxes Saving Strategies
The following helps you either lower or save the capital gains tax on inheritance:
- Purchase another house within the allotted time frame under Section 54
- Invest in bonds under Section 54EC, either NHAI or REC bonds.
- Keep correct records including the original purchase deed and will
Final Notes
Planning better depends on knowing how capital gains tax on inheritance operates in India.
Inheriting anything does not call for panic.
Just be wise in your choice of sale date.
If you’re ever unsure, it’s always a great idea to speak with a tax professional who can lead you depending on your circumstances.
