Inheritance Tax on Property: Introduction, Rules & Taxability

Inheritance tax is a tax imposed on the estate of the deceased individual which will be inherited by the beneficiaries named in the will or to those determined by succession laws. India currently does not impose tax on inheritance. However, there are other tax rules that heirs must understand.

Inheritance tax is levied on wealth passed down after a family member’s demise. It is usually paid by the heir receiving the assets. Many countries, including the UK and the US, have such a tax. In India, however, the concept of levying tax on inheritance does not exist. The Inheritance or Estate Tax was abolished with effect from 1985.

Inheritance in India happens in different ways. The method of inheritance affects taxation and ownership rights. While there is no inheritance tax on property, the way assets pass down can impact tax liability.

• Will of Succession

  A will is a legal document specifying asset distribution. The person making the will is called the testator. The legal heirs receive the assets after the testator's death.

• Inheritance by Nomination

  Nomination simplifies asset transfer for bank accounts, fixed deposits, insurance policies, and shares. The nominee is chosen by the asset owner, and the nominee gets the asset after the owner’s death.

• Inheritance by Joint Ownership

  Jointly owned properties automatically transfer to the surviving owner upon the other’s demise. This avoids legal delays, but taxation still applies. There is no inheritance tax on joint property. However, the survivor becomes responsible for taxes if they sell the property.

The owner of the inherited property is liable to pay the capital gains tax upon the sale of the inherited property. Any asset received as an inheritance is exempted from gift tax, but the amount received from the subsequent asset's sale is not exempted and is taxable under the category of capital gains.

Capital gains can be long-term or short-term, depending on the period for which the asset was held. For the calculation of capital gains on the sale of inherited property, the holding period begins from the time the previous owner bought or acquired that property.

Inheritance can provide financial security. But heirs must understand the tax rules. While there is no inheritance tax on property in India, selling inherited assets attracts capital gains tax on inherited property sales. Reporting it correctly in tax returns is crucial.

Our content given in this article is as per the existing provisions, laws and regulations as per the Income Tax Act, 2025 and Income Tax Rules, 2026 issued thereunder. Tax laws are subject to amendments made thereto from time to time. The benefits / guidance mentioned herewith should not be considered as opinion / view of the Company. We request to seek independent view from your personal tax advisor on applicable tax benefits / guidance under the said article.