Your grandfather bought the Pune plot for ₹50,000 in 1972. When you sell it in 2026, your cost for tax can be the 1 April 2001 FMV — not ₹50,000.

When you inherit Indian property and later sell it, the Indian tax department does not treat your inheritance date as the purchase date. The tax code says: the cost of the property to you is whatever the cost was to the previous owner. The holding period also carries forward — if your father held the flat for 30 years and you've held it for 2 since his death, the total holding period for tax purposes is 32 years.

For long-held inherited property, this is mostly good news. The holding period almost always crosses the 24-month threshold for long-term capital gain treatment, which is taxed at a much friendlier rate than short-term. But there's a hidden problem: the cost.

If your grandfather bought a Pune plot in 1972 for ₹50,000, and you sell it in 2026 for ₹2 crore, the tax department's default position is: your cost is ₹50,000. Your gain is ₹1.99 crore. Your tax on that gain — at the flat 12.5% rate that applies to NRIs selling Indian property after 23 July 2024 — is approximately ₹24.94 lakh.

Most CAs file this way. It's not wrong. It's just leaving a big lever on the table.

Buried inside the cost-determination section of the Indian tax code is a quiet option. For any capital asset that became the previous owner's property before 1 April 2001, the taxpayer can elect to use the fair market value of the asset as on 1 April 2001 as the cost — instead of the actual historical cost.

The logic is administrative. When the law was being modernised, the government recognised that records of property purchases from the 1960s, 70s, and 80s were often missing, incomplete, or in formats the new indexation regime couldn't process. So they gave taxpayers a clean break: pick a single date (1 April 2001), establish a fair value on that date, and treat it as the cost going forward.

The election is per-property, made when you file the ITR for the year of sale. You attach a valuation report from a government-registered valuer establishing the 1 April 2001 FMV. The department accepts the report unless they have specific reason to challenge the value — and most challenges fail when the valuer is reputable and the methodology is documented.

The practical lever for inherited property: if the previous owner bought the asset before 1 April 2001 (which covers most inherited Indian property in NRI hands today), the 1 April 2001 FMV is almost always much higher than the actual historical purchase price. You replace the ₹50,000 cost with whatever the plot was worth in April 2001 — often ₹5 lakh, ₹15 lakh, or ₹50 lakh depending on the property and the city. The gain drops by that amount. The tax drops by 12.5% of that drop.

Your grandfather bought a 2BHK in Bandra in 1975 for ₹2 lakh. He passed it down to your mother in 2005. She passed it to you in 2018. You sell it in October 2026 for ₹3 crore.

Under the historical-cost route:

Under the April 2001 FMV step-up:

Difference: ₹4.75 lakh in tax saved on a single transaction. The valuer's report cost is ₹15,000-25,000.

The 1 April 2001 FMV must come from a registered valuer — someone whose registration with the income tax department is current. The department maintains a list of approved valuers by district. A residential property valuation typically costs ₹15,000-25,000; a commercial property or large plot can go up to ₹50,000-80,000.

The valuer's methodology matters. The defensible approaches are: comparable transactions in the same locality around April 2001 (the strongest method), the reverse-index method using a credible municipal benchmark adjusted backwards to 2001, or the depreciated replacement cost method for non-residential assets. The valuer writes up the methodology, supporting data, and final figure in a formal report — typically 8-15 pages.

The report should be obtained before you file the ITR for the year of sale. Filing without it and then trying to slot it in via a rectification weakens the position. The department's stance is that the FMV election is made at the time of filing the ITR; the supporting report should be available then.

A reasonable valuer's report rarely faces a serious challenge. The department's standard response is to either accept the value or refer it to their own Departmental Valuation Officer, who issues a second report. If the two reports disagree, the department's officer's value is used — but it's typically not radically different from the taxpayer's report when the methodology is sound.

There's been a lot of confusion since Budget 2024 about what's still available and what isn't. Here's the precise position.

Before Budget 2024, long-term capital gains on Indian property carried two benefits: a step-up of the cost basis to 1 April 2001 FMV (if applicable), AND indexation of that stepped-up cost from 2001 to the year of sale using the Cost Inflation Index. Together these often wiped out 50-70% of the nominal gain.

Budget 2024 changed two things for transfers from 23 July 2024 onwards. First, the long-term capital gains rate on Indian property dropped from 20% to a flat 12.5%. Second, indexation was removed for all NRI sellers (and most resident sellers, with a narrow grandfathering for resident individuals and HUFs).

What survived: the April 2001 FMV step-up itself. The election to use 2001 FMV as cost is still available, still attached to property the previous owner held before 1 April 2001, and still claimed via the same cost-determination section.

What changed: you no longer get to inflate the 2001 FMV upwards using the indexation table. The cost is the 2001 FMV, flat. The gain is sale value minus 2001 FMV. The tax is 12.5% of that gain.

The step-up is still a real lever. It's just no longer paired with indexation. For inherited property bought decades before 2001, the FMV step-up alone still moves the tax bill by lakhs.

If you sold inherited Indian property in the past five assessment years and your CA filed using historical cost rather than the April 2001 FMV election, the over-paid tax is recoverable. The route is a revised return combined with a condonation-of-delay petition under Section 119(2)(b) of the Act. The CBDT has notified time limits for these petitions — currently up to five assessment years back.

The process: get a valuer's report establishing the 1 April 2001 FMV of the property as it stood then. File the condonation petition with the petitioning Commissioner explaining the genuine hardship (over-payment of tax due to non-application of an available statutory option). If admitted, file the revised return claiming the lower gain. The refund processes 6-12 months after the revised return is processed.

The acceptance rate for condonation petitions on this fact pattern is good — provided the valuer's report is solid and the original ITR was filed in time. Late-filed original returns weaken the position; the condonation framework was designed for genuine oversight, not for taxpayers who never engaged with the system.

For inherited property sold three or four years ago at high values, the recoverable tax can run into multiple lakhs. The condonation path is one of the few legitimate ways to reverse an over-paid tax bill after the original filing window has closed.