Capital Gains Tax on Sale of Inherited Assets

When you sell an inherited asset, capital gains tax applies. The key difference from regular capital gains is how the cost basis and holding period are calculated. For inherited assets, you step into the shoes of the previous owner for both.

Holding period: The period starts from when the original owner acquired the asset, not when you inherited it. If your mother bought shares in 2010 and you inherited them in 2024, the holding period for capital gains purposes is from 2010. This almost always qualifies as long-term, which means lower tax rates.

Cost basis: Your acquisition cost is the cost at which the previous owner bought the asset. For assets acquired before April 1, 2001, you can use the fair market value as of April 1, 2001 as the cost of acquisition. Indexation benefits apply to long-term capital assets (except listed shares and equity mutual funds post-2018).

For listed shares and equity mutual funds, long-term capital gains above ₹1,25,000 in a financial year are taxed at 12.5% without indexation. For property and other assets, LTCG is taxed at 12.5% after indexation (as per the 2024 budget changes, indexation benefit has been removed for property acquired after July 2024, but the previous owner's acquisition date determines applicability).

Tax-saving strategies: If you sell inherited property, you can claim exemption under Section 54 by reinvesting in another residential property, or under Section 54EC by investing in specified bonds within 6 months. Planning these reinvestments before the sale can save significant tax.