Tax on Inherited Property Sale in India: What NRIs Must Know

Tax on Inherited Property Sale in India: What NRIs Must Know

For NRIs living in the USA, UK, Canada, UAE, Australia, and Europe, selling inherited property in India often comes with one major concern:

“How much tax will I have to pay?”

The tax treatment of inherited property is very different from self-purchased property—and misunderstanding it often leads to excess TDS deduction, blocked funds, and avoidable tax disputes.

This guide explains how tax on inherited property sale works for NRIs, how capital gains are calculated, what benefits apply, and how to stay compliant without paying more than legally required.

Is Inherited Property Taxable When You Receive It?

No.

Inheritance itself is not taxable in India. When an NRI inherits property:

• No income tax is payable at the time of inheritance

• No capital gains arise on receipt

• No FEMA restriction applies to inheritance

Tax arises only when the inherited property is sold.

What Type of Tax Applies on Sale of Inherited Property?

When an NRI sells inherited property, the tax applicable is:

• Capital Gains Tax, not income tax

The key factor is how long the property has been held, calculated in a specific way for inherited assets.

How Holding Period Is Calculated for Inherited Property

This is one of the biggest advantages NRIs often miss.

For inherited property:

• Holding period starts from the date the previous owner acquired the property

• Not from the date of inheritance

As a result, most inherited properties qualify as long-term assets, even if the NRI inherited them recently.

This significantly impacts tax liability.

Long-Term vs Short-Term Capital Gains (Inherited Property)

In most cases:

• Inherited property is treated as long-term

• Long-term capital gains (LTCG) rules apply

Short-term capital gains usually apply only if:

• The previous owner held the property for a very short period

This distinction is crucial for tax planning.

How Cost of Acquisition Is Determined

For inherited property:

• Cost of acquisition is taken as the original purchase price paid by the previous owner

• Not the market value at inheritance

This original cost is then adjusted using indexation benefits.

If original purchase documents are missing, alternative valuation methods may be required—but documentation quality matters.

Indexation Benefit: Why Tax Is Often Lower

Indexation adjusts the purchase cost for inflation.

For inherited property:

• Indexation starts from the year the previous owner bought the property

• Not from the year of inheritance

This often results in:

• Higher indexed cost

• Lower taxable capital gains

• Lower final tax liability

NRIs who skip indexation calculations often overpay tax.

Capital Gains Tax Rate for NRIs

For long-term inherited property sales:

• Tax is calculated as per long-term capital gains provisions

• Surcharge and cess may apply depending on total income

Actual tax payable is usually far lower than TDS deducted by buyers.

TDS on Sale of Inherited Property (Major Pain Point)

Buyers purchasing from NRIs are required to deduct TDS.

In inherited property cases:

• Buyers often deduct TDS on the entire sale value

• Without considering indexation or exemptions

• Leading to large excess tax deduction

This is why many NRIs face cash flow blockage even when actual tax is low.

Can NRIs Reduce Excess TDS on Inherited Property Sale?

Yes, with advance planning.

NRIs can:

• Compute actual capital gains accurately

• Apply for a lower TDS certificate before sale

• Ensure buyer deducts tax closer to actual liability

Without this, refund becomes the only option—which is time-consuming.

Capital Gains Exemptions Available to NRIs

NRIs selling inherited property may be eligible for:

• Reinvestment-based capital gains exemptions

• Bond-based exemptions

Eligibility depends on:

• Nature of gains

• Timing of reinvestment

• Compliance with conditions

Exemptions reduce tax—but do not automatically reduce TDS unless planned properly.

Tax Filing Obligation After Sale

After selling inherited property:

• Filing an Indian income tax return is mandatory

• Capital gains must be reported

• TDS credit must be claimed

This is required even if:

• TDS fully covers tax

• Or excess tax has already been deducted

Refunds are processed only after return filing.

Common Tax Mistakes NRIs Make With Inherited Property

• Assuming inheritance date determines holding period

• Ignoring indexation benefits

• Accepting excessive TDS deduction

• Not filing tax return after sale

• Poor documentation of original purchase cost

These mistakes often cost NRIs lakhs in blocked funds.

Practical Tax Planning Tips for NRIs

• Gather previous owner’s purchase documents early

• Compute capital gains before listing property

• Educate buyers about inherited property tax rules

• Plan TDS reduction before sale completion

• Align tax planning with repatriation strategy

Tax planning works best before the sale, not after.

How NRIWAY Helps NRIs With Tax on Inherited Property Sale

NRIWAY supports NRIs by:

• Reviewing inherited property tax exposure

• Structuring accurate capital gains computation

• Coordinating TDS planning

• Ensuring post-sale tax compliance

• Aligning tax outcomes with repatriation needs

This prevents excess tax, compliance errors, and prolonged refunds.

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Frequently Asked Questions

Is inherited property taxed differently for NRIs and residents?
Tax rules are similar, but TDS treatment differs.

Can market value at inheritance be used as cost?
Only in specific situations, subject to rules.

Is TDS final tax?
No. Actual tax is determined after return filing.

Can tax be avoided completely?
Tax can be reduced legally, but not ignored.

Final Thoughts: Inherited Property Tax Is Often Lower—If Done Right

For NRIs, inherited property usually carries favourable tax treatment, thanks to extended holding period and indexation. The problem arises when these benefits are not planned or communicated properly.

With correct documentation and advance planning, NRIs can sell inherited property without overpaying tax or blocking funds unnecessarily.

NRIWAY acts as a professional concierge for NRIs—helping you navigate inherited property taxation, TDS planning, and compliance with clarity, discipline, and confidence, wherever you live.

Because when it comes to inherited property, understanding the tax rules can save you more than negotiating the price.

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