Inheritance

Why inheritance itself is not taxed

Any money, immovable property, or movable property you receive under a will, by way of inheritance, or in contemplation of the donor’s death is specifically excluded from the gift tax provisions that would otherwise apply. This means the value of what you inherit, however large, does not get added to your taxable income at the point you receive it.

India does not currently levy a separate estate duty or inheritance tax. This exemption applies regardless of the relationship between you and the deceased, so it covers inheritance from a parent, sibling, or someone entirely unrelated to you, as long as it genuinely passes under a will or by succession.

Where tax actually enters the picture

Income the inherited asset generates after you receive it is taxable, in your hands, from the date you inherit it onward. Rent from an inherited house, dividends from inherited shares, or interest from an inherited fixed deposit all get taxed the normal way, the inheritance exemption only ever covered the one-time act of receiving the asset itself.

Selling an inherited asset triggers capital gains tax, the same way selling any other capital asset does. This is where most of the real complexity, and most of the real client questions, actually sit.

Cost of acquisition, and how long you have held it

When you eventually sell an inherited asset, two things carry over from the person you inherited it from, not from the date you actually received it:

• Cost of acquisition is taken as whatever the previous owner originally paid for it, not its market value on the day you inherited it. If your father bought a flat for 8 lakh rupees in 1995 and you inherit it in 2026, your cost of acquisition for tax purposes is still 8 lakh rupees, not the flat’s current value
• Holding period is calculated from when the previous owner first acquired it, not from when you inherited it. This means an inherited asset is very often already long-term by the time it reaches you, regardless of how recently you received it

If the asset changed hands through inheritance more than once, say from grandparent to parent to you, the same rule chains back to whoever originally acquired it, not the most recent person to hold it.

If you are an NRI inheriting Indian assets

The exemption on inheriting the asset applies exactly the same way, residential status makes no difference to that part. What changes for an NRI is what happens next: selling an inherited property attracts TDS at the capital gains rate rather than the flat 1 percent a resident seller would see, and repatriating the sale proceeds abroad follows the same USD 1 million per financial year limit and documentation that applies to any other NRI asset sale.

If you are inheriting assets held abroad

If you are a Resident and Ordinarily Resident and you inherit foreign assets, such as a bank account or property overseas, you need to report these under Schedule Foreign Assets when filing your return, even though the inheritance itself is not taxed. This reporting obligation is separate from, and does not depend on, whether any tax is actually due.