Tax
The Tax Reality of Inheritance in India
Article
India has no inheritance tax, but that doesn't mean inherited assets are tax-free. Here's what you need to know.
Published: 3 Apr 2026 · Updated: 2 Oct 2026
India abolished estate duty in 1985. There is no inheritance tax. So receiving an inheritance is tax-free, right? Partly. Money or property you receive under a will or by inheritance is not taxed as income. That rule was in section 56(2)(x) of the Income-tax Act 1961 and carries over into the Income-tax Act 2025, which applies from 1 April 2026. But the income those assets earn afterwards is taxable.
If you inherit a house and rent it out, the rental income is taxable under 'Income from House Property'. If you inherit shares and receive dividends, those dividends are taxable. If you inherit a business, the business income is taxable. The inheritance itself is exempt; what you do with it is not.
The most significant tax event is when you sell an inherited asset. Capital gains tax applies, and the calculation depends on whether the asset is long-term or short-term. For inherited assets, the holding period includes the period the previous owner held the asset, and the cost basis is the original purchase price paid by the previous owner.
This matters when you plan. If your father bought a flat in 1990 and you inherit and later sell it, the gain is worked out from his cost, not from the value on the day you inherited. Because he bought it before April 2001, the cost can be taken as its fair market value on 1 April 2001 instead (for land and buildings, no higher than the stamp duty value then). Indexation rules changed in July 2024, so ask a CA which way of calculating is lower for you. Keeping the old purchase papers can save lakhs.
Will drafting with tax efficiency in mind can significantly reduce your family's tax burden. Distributing assets to family members in lower tax brackets, using HUF structures, and timing asset transfers are all legitimate strategies that should be considered during estate planning.
Sort My Legacy's resource library includes guides on capital gains, rental income and HUF benefits for inherited assets. Document your assets with purchase dates and costs to make the tax calculation straightforward for your heirs.
General information, not legal, tax or financial advice. Laws and rules change, so check with a qualified lawyer or CA before you act.
