You inherit the asset and its cost history with it
The instinct after inheriting something is to treat its cost as nil, because you never paid for it. The law does the opposite. Under Section 49(1), when you acquire an asset by inheritance or under a will, you step into the previous owner's shoes — their cost of acquisition becomes your cost, and any improvement they made carries over too. So if your father bought a flat for a certain sum, that sum is your cost when you later sell it, even though it passed to you for nothing.
The holding period works the same way. The period your parent held the asset is added to the period you held it, so an asset that was in the family for years is treated as long-term in your hands almost regardless of how long you personally owned it before selling. That matters, because long-term and short-term gains are taxed under different rules.
The practical consequence is that the cost history is precious. The original purchase deed, the price paid, the dates, any major improvement — these are the figures that shrink the taxable gain. Families that kept them are in a far stronger position than those reconstructing them after a sale, which is why the estate-mapping stage tries to capture them early.
Assets bought before April 2001 — the choice you get
Many inherited assets — especially family land and old flats — were acquired by the original owner long ago, sometimes for amounts that look tiny today. For these, the law offers a fairer alternative. Where the asset was acquired before 1 April 2001, you may choose to treat its fair-market value as on 1 April 2001 as the cost instead of the actual (often very low) original price (Section 55(2)(b)). You take whichever is more beneficial.
There is one important guardrail for land or building. The 2001 fair-market value you substitute cannot exceed the stamp-duty value of that property as on 1 April 2001. So you can't simply commission an optimistic valuation — the substituted figure is the lower of a defensible fair-market valuation and the 2001 stamp-duty value. In practice you need both numbers, and the lower one stands.
| Asset acquired by original owner | Cost you may use |
|---|---|
| On / after 1 Apr 2001 | The actual cost they paid (Section 49(1)) |
| Before 1 Apr 2001 | Actual cost, or 1-Apr-2001 FMV — whichever helps |
For an asset your parent bought in, say, the 1980s, the 2001 fair-market value is usually far higher than the original price, so substituting it can materially reduce the taxable gain — which is exactly why the 2001 valuation is worth getting properly, with the stamp-duty cap respected.
How the gain is then taxed — and the NRI property rule
Once the cost is settled, the gain is the sale price (less selling costs) minus that cost, and the rate depends on the asset and how long it counts as held — with the previous owner's holding period included, inherited assets are usually long-term.
For an NRI selling land or building, there is a specific current rule that overrides older habits. For any sale on or after 23 July 2024, long-term capital gains on land or building are taxed at a flat 12.5% with no indexation (Section 112). The old 20%-with-indexation route — and the choice between the two that resident individuals got for property bought before that date — does not apply to NRIs; an NRI is on the flat 12.5%, no-indexation basis. So for property, indexation no longer reduces the gain, which makes the 2001 fair-market-value substitution (where the asset qualifies) more valuable, not less, because that is now the main lever left on the cost side.
The buyer is also required to deduct tax at source on an NRI's property sale, and that TDS is computed on the gain at this rate (plus surcharge and cess). Getting the cost basis right before the sale — not after — is what stops tax being deducted on an overstated gain and then having to be reclaimed. Where excess has been deducted, a lower-deduction certificate (Form 13) is the route to fixing it up front, covered on the property-sale pages.
A worked example: an NRI selling a flat his father bought in the 1980s
Vikram, an NRI in the UK, inherited a flat in Pune that his father had bought in 1985 for a small sum. His father held it until he died in 2026, and Vikram now wants to sell. His first instinct was that the whole sale price would be taxed, since he paid nothing for it.
That isn't how it works. Because his father acquired the flat before 1 April 2001, Vikram can substitute the flat's fair-market value as on 1 April 2001 for the negligible 1985 price — capped at the flat's stamp-duty value on that date. With a defensible 2001 valuation and the 2001 stamp-duty value both on hand, the lower of the two becomes his cost, far higher than the original price and so a much smaller taxable gain. The holding period includes his father's decades of ownership, so the gain is long-term. Because the sale is after 23 July 2024 and Vikram is an NRI, the long-term gain is taxed at a flat 12.5% with no indexation — the resident's 20%-with-indexation option isn't open to him. The buyer must deduct TDS on that gain, so the CA computes the figure correctly before the sale and, where the deduction would otherwise overshoot, helps Vikram apply for a lower-deduction certificate so cash isn't locked up waiting for a refund.