Selling an inherited flat: your cost, holding period and tax under the Income-tax Act, 2025

Rules and rates as of 17 October 2026.

Inheriting a flat is not taxed. Selling it is.

When a parent leaves you a flat, there is no income tax on receiving it. Under the Income-tax Act, 2025, in force since 1 April 2026, section 70(1)(b) says a transfer of a capital asset by an individual "under a will or a gift" is not treated as a transfer for capital gains. So the will itself does not create a tax bill.

The tax arrives later, when you sell. At that point three questions decide how much you pay: what the flat "cost", how long it was "held", and which rate applies. For an inherited flat, the answers are not what most people assume.

Question 1: what is your cost?

Not the market value on the day you inherited. Section 73(1) of the 2025 Act has a table of special cases. Serial No. 1 covers an asset that became yours "under a gift or will" or "by succession, inheritance or devolution". For these, the cost is the cost "for which the previous owner of the property acquired it", increased by the cost of any improvement paid for by the previous owner or by you.

The "previous owner" is defined in section 73(2)(a) as the last owner who acquired it by an ordinary route, such as buying it, rather than by gift or inheritance. If your grandfather bought the flat, left it to your father, who left it to you, the previous owner is your grandfather. His purchase price is your cost.

This is why the old sale deed matters so much. Without it you have to reconstruct the price from registration records, which can be slow.

Very old flats. If the previous owner held the flat before 1 April 2001, section 90(9)(b) lets you choose its fair market value on 1 April 2001 instead of the original cost. Section 90(10) caps that value at the stamp duty value on that date, where one is available. A registered valuer's report is the usual way to support it.

Question 2: how long was it held?

A flat is a short-term capital asset if held for not more than 24 months before the sale, under section 2(101)(a). But section 2(101)(c)(B)(I) adds the period for which the asset "was held by the previous owner" for assets covered by section 73(1) Serial No. 1.

In practice, an inherited flat is almost always long-term, even if you sell it a month after the death, because the parent's years of ownership count. The exception is a flat the previous owner had bought less than two years before.

Question 3: which rate?

Long-term capital gains on a flat are taxed at 12.5% under section 197(1)(b), with no indexation. Section 197(3) gives resident individuals and HUFs a safeguard for land or buildings "acquired before the 23rd July, 2024": tax is worked out both ways, at 12.5% without indexation and at 20% with indexed cost, and any excess of the first over the second is ignored. In effect, you pay the lower of the two.

Indexation means scaling up the cost using the Cost Inflation Index (CII). For tax year 2026-27 the CII is 384, notified by the CBDT on 15 July 2026 (Notification No. 85/2026).

The open question for heirs: indexed from which year?

Section 72(8)(b) defines indexed cost using the CII for "the first year in which the asset was held by the assessee", or 2001-02 if later. Read on its own, for an heir that could mean the year you inherited. Read with section 73 and section 2(101), which treat the previous owner's holding as part of yours, it could mean the year the previous owner bought it.

The difference can be large, as the example below shows. This was argued over under the old 1961 Act. The 2025 Act's wording has not, as far as we found, been tested yet. A chartered accountant should decide which basis to use in your return.

A second, smaller question: whether "acquired before 23 July 2024" refers to your inheritance or the previous owner's purchase. If both happened before that date, as in the example, you are covered either way. If you inherited after it, ask your CA.

Worked example

Ananya's father bought a flat for ₹25,00,000 in 2005-06 (CII 117). He died in 2019-20 (CII 289) and left it to her by will. She sells it in October 2026 (tax year 2026-27, CII 384) for ₹1,20,00,000. To keep it simple, assume no improvements, no brokerage or other transfer costs, and no reinvestment.

Option A: 12.5% without indexation. Gain = ₹1,20,00,000 − ₹25,00,000 = ₹95,00,000. Tax = 12.5% × ₹95,00,000 = ₹11,87,500.

Option B1: 20% with indexation from the father's year. Indexed cost = ₹25,00,000 × 384 ÷ 117 = ₹82,05,128. Gain = ₹1,20,00,000 − ₹82,05,128 = ₹37,94,872. Tax = 20% × ₹37,94,872 = ₹7,58,974.

Option B2: 20% with indexation from Ananya's year. Indexed cost = ₹25,00,000 × 384 ÷ 289 = ₹33,21,799. Gain = ₹1,20,00,000 − ₹33,21,799 = ₹86,78,201. Tax = 20% × ₹86,78,201 = ₹17,35,640.

Method	Cost used	Taxable gain	Tax before cess
A: 12.5%, no indexation	₹25,00,000	₹95,00,000	₹11,87,500
B1: 20%, indexed from 2005-06	₹82,05,128	₹37,94,872	₹7,58,974
B2: 20%, indexed from 2019-20	₹33,21,799	₹86,78,201	₹17,35,640

Under section 197(3), the excess of A over B is ignored. If B1 is the right reading, Ananya pays ₹7,58,974, which is ₹4,28,526 less than A. If B2 is the right reading, B2 is higher than A, so nothing is ignored and she pays A, ₹11,87,500. Either way, using the father's cost of ₹25 lakh is not optional, and the holding period is long-term because his years count.

These figures are before the health and education cess and any surcharge, which depend on her total income. They are illustrative; your numbers will differ.

Reducing the tax: the reinvestment route

If the inherited flat is a residential house, section 82 of the 2025 Act lets an individual or HUF reduce the long-term gain by investing in one residential house in India, bought within one year before or two years after the sale, or built within three years. Amounts above ₹10 crore are not counted. The conditions are detailed, including what happens if the new house is sold soon after, so check them with your CA before you sign anything.

Paperwork to gather before you sell

• The previous owner's purchase agreement or sale deed, and payment proof.
• Bills for any major improvement, by the parent or by you, with dates.
• The will and probate (if obtained), or the legal heir or succession papers, and the society's or authority's transfer record in your name.
• For a flat held before April 2001, a registered valuer's report and the 2001 stamp duty value.
• If there are co-heirs, each one's share: usually each heir works out tax on their own share of the sale price and cost; confirm this with your CA.

Old section numbers, for reference

If your CA or an older guide quotes the 1961 Act: the cost rule for inherited assets was formerly section 49(1), the "not a transfer" rule for wills and gifts was formerly section 47(iii), and the reinvestment exemption was formerly section 54. Those numbers no longer apply to sales from 1 April 2026.

This explainer is general information on the law as of the date above. It is not tax advice. For your own sale, speak to a chartered accountant.