New Delhi: When you receive a house or land from your parents through gift or inheritance, you don’t have to pay any tax at the time of receiving it. However, if you decide to sell that property later, you may need to pay capital gains tax.

Gifted Property: How Tax Works

If you receive property as a gift from your parents, it is not taxed in your hands because gifts from relatives are exempt. Once you own it, any rental income you earn from that property will be taxable in your name.

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When you sell the property, the capital gains tax liability is also yours.

Special Rule for Spouse or Daughter-in-law

If the property is gifted to a spouse or daughter-in-law, the clubbing rule may apply. In such cases, the rental income or capital gains are still added to the parent’s (or husband’s) taxable income instead of the recipient’s. The same rule applies when property is gifted to a minor child.

Inherited Property: How Tax Works

If you inherit property from your parents, the tax liability arises only when you sell it. The cost of acquisition for tax purposes will be the same amount your parents originally paid for the property, not its market value on the date you inherited it.

For example:

If your parents bought land in 1990 for Rs 10 lakh and you inherited it in 2001 when the value was ₹40 lakh, your cost of acquisition will still be Rs 10 lakh.

Both the original purchase cost and the holding period of your parents are carried forward to you. This means:

The purchase price of the previous owner (your parent or even earlier, if they too inherited/got it as a gift) is considered.

The time your parent owned the property is added to your holding period, which usually qualifies the sale as long-term capital gains.

How to Save Tax on Sale of Inherited Property

The Income Tax Act allows you to use indexation (adjusting the purchase cost for inflation) or opt for a lower flat rate without indexation, depending on which benefits you more.

If Property Was Bought Before April 1, 2001

You can choose the fair market value (FMV) as on April 1, 2001 instead of the original purchase cost.

Example: Parents bought property in 1990 for Rs 20 lakh. You sell it in 2025 for Rs 20 crore. The FMV on April 1, 2001, is Rs 40 lakh. You can choose Rs 40 lakh as the cost instead of Rs 20 lakh, which reduces your taxable gain.

You then have two options:

Pay 20 percent tax with indexation (using inflation-adjusted cost), or

Pay 12.5 percent tax without indexation.

In most cases, using the FMV and the 12.5 percent option works out better.

If Property Was Bought After April 1, 2001

You cannot use the FMV benefit here. You only get two options:

20 percent with indexation, or

12.5 percent without indexation.

Example: Parents bought property in 2005 for Rs 50 lakh. You sell it in 2025 for Rs 1.5 crore. In this case, using indexation with the 20 percent tax rate reduces your tax burden compared to the 12.5 percent option.