Selling an Inherited Flat in Mumbai: How Capital Gains Tax Is Worked Out

When you sell a flat you inherited, the previous owner's cost and holding period count. How that works, the indexation question, and what papers to collect.

Black-and-white view of Malabar Hill and the South Mumbai skyline under heavy clouds

Many NRI clients come to us after inheriting a parent's flat in Mumbai. The first question is usually: how much tax will I pay if I sell?

Inheriting isn't taxed; selling is

Receiving a flat through a will or inheritance isn't treated as a sale. Tax comes up when you sell it.

Cost: the previous owner's cost

Section 73 of the Income-tax Act, 2025 says that for an asset received by will, succession or inheritance, the cost of acquisition is the cost for which the previous owner acquired it, plus improvements made by the previous owner or by you. Where the previous owner bought before 1 April 2001, commentators note that the higher of the actual cost or the fair market value on 1 April 2001 can be used. Ask your CA whether that applies.

Holding period: theirs counts too

The period the previous owner held the flat is added to yours. So an inherited flat your parent owned for decades is usually a long-term asset even if you sell it soon after inheriting.

Indexation: from when?

Under the 1961 Act, the Bombay High Court in CIT vs Manjula J. Shah held that indexed cost of a gifted asset is computed with reference to the year the previous owner first held it. The Gujarat and Delhi High Courts took similar views for inherited property.

Inheriting a flat isn't taxed. Selling it is, and the tax starts from what your parent paid, not what the flat was worth when you inherited it.

Which rate applies?

Long-term gains on property are taxed at 12.5%.
For a resident individual or HUF, if the property was acquired before 23 July 2024, the tax is limited to what it would be at 20% with indexation. Read 12.5% or 20% with indexation.
Non-residents pay 12.5% without indexation, and buyers deduct TDS. See TDS when an NRI sells.

Papers to collect before you sell

Your parent's original purchase agreement and payment proofs.
Records of improvements (receipts, society approvals).
Death certificate, will or probate, or succession documents.
Society transfer of the share certificate to your name. See transferring a flat after death.
If bought before 2001, a registered valuer's report for 1 April 2001.

Saving tax on the sale

Exemptions for reinvesting in a house (section 82) or in bonds (section 85) can apply to an inherited flat too, if you meet their conditions.

Inherited a flat in Mumbai? We can manage it, rent it or help you sell. Book a video call.

Sources

General information, not tax advice. Speak to a chartered accountant before acting.

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