Short answer: An NRI pays no tax on inheriting property in India and pays capital gains tax when the property is sold. The cost is what the previous owner paid, or the fair market value on 1 April 2001 if they bought earlier. The holding period includes the previous owner's years, so the gain is long-term in most cases and taxed at 12.5% without indexation under section 197 of the Income-tax Act 2025. The buyer deducts TDS on the full sale price.
Capital Gains Tax on Inherited Property in India for NRIs
An NRI pays no tax on inheriting property in India and pays capital gains tax when it is sold. The cost is what the previous owner paid, not the value on the date of death. The holding period includes the previous owner's years, so the gain is long-term in most cases and taxed at 12.5% without indexation. The buyer withholds TDS on the full sale price.
That is the whole rule. The rest of this guide shows where each part sits in the Income-tax Act 2025, in force since 1 April 2026, and works one sale through to the tax figure. The rates did not change when the 1961 Act was replaced. The section numbers did, so the table below gives both.
Capital gains tax on inherited property in India for NRIs: the rules at a glance
| Question | Rule | Income-tax Act 2025 | Old 1961 Act |
|---|---|---|---|
| Is inheriting taxed? | No. A transfer under a will is not a transfer, and property received under a will or by inheritance is outside the gift-tax charge | s.70(1)(b), s.92(3)(c) | s.47(iii), s.56(2)(x) |
| What is my cost? | The previous owner's cost, plus improvement by them or you | s.73(1), Table Sl. No. 1 | s.49(1) |
| Bought before 1 April 2001? | Previous owner's cost or FMV on 1 April 2001, at your option. FMV for land or building capped at the stamp duty value on that date | s.90(9)(b), s.90(10) | s.55(2)(b)(ii) and proviso |
| Cost not known? | FMV on the date the previous owner acquired it | s.90(11) | s.55(3) |
| Holding period | Includes the previous owner's period. Over 24 months is long-term | s.2(101)(c)(B)(I) | s.2(42A) |
| Long-term rate | 12.5%, no indexation, plus surcharge and cess | s.197(1)(b) | |
| 20%-with-indexation option | Resident individuals and HUFs only, for land or building acquired before 23 July 2024 | s.197(3) | |
| TDS when an NRI sells | On the full sale consideration | s.393(2), Table S.No. 17 | s.195 |
| Lower TDS certificate | Deduction on the real gain | s.395, Form 128 | s.197, Form 13 |
| Reinvest in a house or bonds | Exemption, subject to limits | s.82, s.85 | s.54, s.54EC |
You owe nothing at the moment of inheritance
India has no inheritance tax and no estate duty. Section 70(1)(b) of the 2025 Act lists a transfer of a capital asset by an individual under a will among transactions not regarded as transfer, so no capital gain arises when the property passes to you. Section 92(3)(c) keeps property received under a will or by way of inheritance outside the gift charge in section 92(2)(m).
So the day you inherit, you pay zero. The bill arrives when you sell, and the cost rule decides its size.
Your cost is the previous owner's cost, not the value at inheritance
When you sell, section 73(1) deems your cost of acquisition to be the cost for which the previous owner acquired the property, increased by any improvement the previous owner or you paid for. The Table in that section covers property received under a gift or will and by succession, inheritance or devolution.
The market value on the date of death does not enter the calculation. India gives heirs no step-up in cost basis. If your father bought a flat for 8 lakh and it was worth 1.1 crore when he died, your gain is measured from his cost, not from 1.1 crore.
"Previous owner" has a precise meaning. Section 73(2)(a) defines it as the last previous owner who acquired the property by a mode other than gift, will or inheritance. If your grandfather bought the flat, your father inherited it, and you inherited it from him, the cost is your grandfather's purchase price.
If the previous owner's cost cannot be traced, section 90(11) sets it at the fair market value on the date the property became the previous owner's.
FMV as on 1 April 2001: the substitution for old family property
If the previous owner acquired the property before 1 April 2001, section 90(9)(b) lets you take either the previous owner's cost or the fair market value on 1 April 2001, at your option. Pick the higher figure. A higher cost means a smaller gain.
Section 90(10) caps it. For land or building, the 2001 fair market value cannot exceed the stamp duty value of the property on 1 April 2001, wherever that value is available. Get a registered valuer's report for the 2001 figure and check it against the stamp duty value for that date before you file. The Assessing Officer will ask for both.
Property the previous owner acquired on or after 1 April 2001 gets no substitution. You use the actual cost.
The holding period includes the previous owner's years
Section 2(101) defines a short-term capital asset as one held for not more than 24 months. Section 2(101)(c)(B)(I) adds the period for which the previous owner held the asset when it reached you by will or inheritance.
If your father bought in 2003 and you sell in 2026, your holding period is 23 years, not the time since his death. Inherited property is long-term in almost every case. The same rule that hurts you on cost helps you on rate.
The rate: 12.5% without indexation, and no grandfathering for NRIs
Section 197(1)(b) taxes long-term capital gains at 12.5%. This rate took effect for transfers on or after 23 July 2024 under the Finance (No. 2) Act 2024 and carried into the 2025 Act. Surcharge and 4% health and education cess sit on top.
Section 197(3) keeps one older option. For land or building acquired before 23 July 2024, an individual or HUF who is resident may ignore the tax that exceeds the 20%-with-indexation figure. The subsection names residents. An NRI seller pays 12.5% on the unindexed gain, whatever the acquisition date. Our wider guide on capital gains tax on NRI property covers the exemptions in detail.
A short-term gain, rare on inherited property, is taxed at slab rates.
A worked example
This is an illustration with round numbers, not a client file.
- Your father bought a flat in 1995 for 8 lakh.
- A registered valuer puts its value on 1 April 2001 at 25 lakh. The stamp duty value on that date was 22 lakh, so section 90(10) caps the substitute cost at 22 lakh.
- In 2010 he spent 3 lakh on structural repair. That is a cost of improvement.
- He died in 2024. The flat was then worth 1.1 crore. That figure plays no part.
- You sell in 2026 for 1.5 crore.
| Step | Amount |
|---|---|
| Sale consideration | 1.5 crore |
| Less cost: FMV on 1 April 2001, capped at stamp duty value | 22 lakh |
| Less cost of improvement, 2010 | 3 lakh |
| Long-term capital gain (held since 1995) | 1.25 crore |
| Tax at 12.5%, before surcharge and cess | 15.63 lakh |
| TDS base: 12.5% of the full 1.5 crore, before surcharge and cess | 18.75 lakh |
The buyer withholds on 1.5 crore, not on the 1.25 crore gain, so about 3.1 lakh more than the tax leaves your hands at registration before surcharge and cess are added to both lines. The gap widens as the gain shrinks. If you reinvest under section 82 or section 85, the real tax can fall to nil while the buyer still withholds on the full price.
TDS on the full sale value
When the seller is an NRI, the buyer deducts TDS under section 393(2), Table S.No. 17, at the capital gains rate plus surcharge and cess, on the entire consideration. For long-term holdings that works out to 13% to 14.95% of the price.
You recover the excess one of two ways. You file a return and claim a refund, or you obtain a lower-deduction certificate under section 395 before the sale closes, applied for on Form 128. The certificate is the cleaner route on any sizeable sale. The mechanics are in our guide on TDS on sale of property by an NRI. Moving the money abroad afterwards has its own rules, covered in repatriating sale proceeds from your NRO account.
Exemptions that cut the gain
Two exemptions apply to a long-term gain on inherited land or building.
- Section 82 (old section 54): reinvest in one residential house in India, bought one year before or two years after the sale, or built within three years. It applies when the asset sold is a residential house. A new house costing above 10 crore counts only up to 10 crore.
- Section 85 (old section 54EC): invest the gain in specified long-term bonds within six months of the sale, up to 50 lakh across the year of transfer and the next, locked in for five years.
Both are open to non-residents. Both need dates and documents a CA should check before you sign the sale deed.
Before you sell, get the title and the heirs clean
The tax computation assumes the property is yours to sell. In practice it needs mutation, the will or a legal heir certificate, and the consent of every co-heir, who each sell their own share and each carry their own tax. A buyer's lawyer will not release funds on a half-documented title. Two guides cover this groundwork: inheriting property in India as an NRI and, when siblings disagree, breaking a co-heir deadlock on inherited property.
FAQ
How is capital gains tax calculated on inherited property in India for an NRI?
Sale price minus the previous owner's cost of acquisition and any cost of improvement, under section 73(1) of the Income-tax Act 2025. If the previous owner bought before 1 April 2001, you may use the fair market value on that date, capped at the stamp duty value for land or building, under section 90(9)(b) and 90(10). Long-term gains are taxed at 12.5% without indexation under section 197, plus surcharge and cess.
Is the cost of inherited property the market value at inheritance?
No. Section 73(1) carries the previous owner's cost forward to you, and India gives no step-up to date-of-death value. That is why the gain on a sale of inherited property spans decades of price growth and is larger than most heirs expect.
Does the holding period of inherited property start from the date of inheritance?
No. Section 2(101)(c)(B)(I) of the Income-tax Act 2025 includes the period the previous owner held the asset. Property held more than 24 months in total is long-term, so an inherited flat is long-term in almost every case.
Can an NRI use the 20% with indexation option on inherited property?
No. Section 197(3) gives that comparison to a resident individual or HUF selling land or building acquired before 23 July 2024. An NRI pays 12.5% on the unindexed gain.
Do NRIs pay capital gains on inherited property they did not buy?
Yes. No tax arises when you inherit, under section 70(1)(b) and section 92(3)(c), but tax arises when you sell, computed from the previous owner's cost. The buyer deducts TDS under section 393(2) on the full price unless you hold a section 395 certificate.
How 66 MG Road helps
Selling inherited property from abroad means a valuer, a tax filing, a lower-deduction certificate and a buyer's lawyer, across a time zone. We run that for owners who cannot be in the room. One vetted manager per property. Dated photo proof of every visit and document collected. Itemized billing with no markup on third-party fees. Rent and proceeds routed to your NRO account. We run property with our own teams in Delhi NCR and Bangalore. A Property Health Check or Watch covers the rest of India through vetted local partners. The tax computation stays with your CA. See what we do or request a proposal for your property.
Saurabh Garg, founder, 66 MG Road
Sources
- The Income-tax Act, 2025 (No. 30 of 2025), Gazette of India Extraordinary, Part II Section 1, 21 August 2025 (s.2(101) holding period including previous owner; s.70(1)(b) will not a transfer; s.73(1) Table Sl. No. 1 and s.73(2)(a) previous owner's cost; s.82 residential house exemption and 10 crore cap; s.85 bonds, 50 lakh cap; s.90(9)(b), 90(10), 90(11) FMV on 1 April 2001, stamp duty value cap, untraceable cost; s.92(3)(c) inheritance outside gift charge; s.197(1)(b) 12.5% and s.197(3) resident-only indexation option; s.393(2) Table Sl. No. 17 and s.395 lower or nil deduction certificate): https://egazette.gov.in/WriteReadData/2025/265620.pdf
- Income-tax Act 1961, sections 2(42A), 47(iii), 49(1), 54, 54EC, 55(2)(b)(ii) and 55(3), 56(2)(x) proviso, 195, 197, Indian Kanoon: https://indiankanoon.org/doc/545792/ , https://indiankanoon.org/doc/454297/ , https://indiankanoon.org/doc/440384/ , https://indiankanoon.org/doc/1030207/ , https://indiankanoon.org/doc/82271184/ , https://indiankanoon.org/doc/1704110/ , https://indiankanoon.org/doc/581289/ , https://indiankanoon.org/doc/1329583/ , https://indiankanoon.org/doc/181948510/
- Income Tax Department, Section 49 of the Income-tax Act 1961 (cost with reference to certain modes of acquisition): https://www.incometaxindia.gov.in/w/section-49-16
- Income Tax Department, Capital Gain overview: https://www.incometaxindia.gov.in/w/capital-gain
- Business Today, NRI property tax changes after Budget 2024-25 (12.5% LTCG without indexation for NRIs, TDS on full sale value): https://www.businesstoday.in/personal-finance/tax/story/nri-property-tax-changes-budget-2024-ltcg-no-indexation-higher-tds-485974-2025-07-23
- Upstox, CBDT clarification on cost of acquisition for real estate bought before 2001 (FMV on 1 April 2001 not exceeding stamp duty value): https://upstox.com/news/personal-finance/tax/it-dept-clarifies-acquisition-cost-of-real-estate-bought-before-2001-for-ltcg-calculations/article-105156/
Information on this page is as on 2026-10-12. Rules, rates, deadlines and government portals change without notice, so verify against the official source before you act. This page is for information only. It is not tax or legal advice, and it is not a substitute for a qualified adviser who knows your position.