Families overseas often assume an Indian equivalent of estate duty and hold back from dealing with a property because of it. There is no such tax at present. What there is, and what catches people, is the tax on the day the property is turned into money.
The moment of inheritance
Two separate provisions do the work here. The Income-tax Act, 2025 charges, as income from other sources, sums of money and property received without consideration above stated thresholds. It then lists the receipts that provision does not apply to, and the list includes property received from a relative, received on the occasion of the individual's marriage, received under a will or by way of inheritance, and received in contemplation of the death of the payer or donor. So an inheritance is outside the charge by name, not by argument.
The second is on the estate's side. A transfer of a capital asset by an individual or a Hindu undivided family under a will, a gift or an irrevocable trust is not treated as a transfer for capital gains purposes. So the passing of the property on death does not create a gain in anyone's hands. Nothing is due, and nothing has to be declared as income for that event.
Where the tax actually sits
Section 73 generally carries the previous owner's acquisition cost and qualifying improvements into the inherited asset's tax calculation. Inheritance does not automatically reset the cost to the market value on the date of death. Older acquisitions can raise additional valuation and computation rules, so preserve the previous owner's papers and obtain the calculation for the actual sale.
The previous owner's holding period can count when classifying an inherited capital asset. That does not make every inherited asset long term automatically. Check the asset type, the earlier owner's acquisition date and the applicable definition before choosing the rate or exemption.
The grandfathering formula in the long-term rate provision, which lets an older method with an indexed cost be used where it produces a lower tax on land or buildings acquired before a specified date in 2024, is confined in terms to an individual or Hindu undivided family being a resident. The computation section ties indexation to that same formula. Do not assume the resident-only grandfathering formula applies to a non-resident sale. Check acquisition dates, residential status and the full computation for the relevant tax year.
What to do now, in order
- Establish the entitlement on paper. Depending on whether there was a will and what the asset is, that means the will, a grant where an institution insists on one, or a succession or legal heir certificate. Our guide on the difference between a succession certificate and a legal heir certificate sets out which document does what, because the wrong one wastes months.
- Get the record changed. Mutation in the revenue record or khata transfer in a municipal area. Until the record shows your name, no buyer will proceed and no bank will lend against the property.
- Find the previous owner's purchase documents. The original sale deed, the receipts, the records of any construction or improvement. This is the single most valuable thing the family can do, and it gets harder every year. Where the papers at home have gone, part of the chain can be rebuilt from the registry.
- Deal with the income in the meantime. A property that is let produces income taxable in India under the head income from house property, and a property that is not let can still attract a deemed annual value. Neither goes away because the owner lives abroad.
- Plan the sale before you agree it. The buyer must determine the applicable deduction on the chargeable sum, including any lower certificate or determination of the taxable proportion, and our guide on tax deduction when an NRI sells Indian property sets out how that works and how to reduce it.
Two things that are not taxes but feel like them
The first is stamp duty. Passing property under a will attracts no stamp duty on the death, but a release deed, a partition deed or a settlement among heirs is a chargeable instrument, and in Karnataka an instrument not duly stamped is inadmissible in evidence until the duty and penalty are paid. Families often create an avoidable cost by executing the wrong document to tidy up an inheritance.
The second is getting the money to you. Sale proceeds and inherited funds leaving India are a regulated remittance with an annual ceiling and its own bank documentation, quite separate from the tax. Our guide on repatriating money from India as an NRI sets out that channel.
The computation on any eventual sale, and whether any reinvestment relief is open to you, turns on your figures, your residential status for the year and the treaty position, and should be confirmed with a chartered accountant for the specific tax year rather than taken from a general note.