Getting an inheritance feels like a financial relief—but many people immediately wonder: Will I have to pay tax on inherited assets in India?
The good news is simple:
✅ Inheritance itself is tax-free in India.
But the moment you earn income from the inherited asset—or decide to sell it—tax rules can apply.
Here’s a clear guide to help you understand exactly when tax is payable, what rates apply, and how you can legally reduce your tax bill.
✅ No Inheritance Tax in India (No Death Tax)
India currently does not charge inheritance tax, estate duty, or death tax.
Inheritance tax was abolished in 1985, so if you receive assets like:
- a house or land
- gold/jewellery
- shares or mutual funds
- bank deposits
- family business assets
👉 you won’t pay tax just for receiving them.
However, taxes can still arise later depending on what you do with those assets.
What Is Taxed Then? ✅ Income Earned From Inherited Assets
While inheritance is tax-free, income generated from inherited assets is taxable.
✅ Example 1: Rental income from inherited property
If you inherit a flat and rent it out, the rent you earn becomes:
📌 Taxable under “Income from House Property”
You can also claim deductions such as:
- ✅ 30% standard deduction on rental income
- ✅ home loan interest deduction (if eligible)
✅ Example 2: Interest, dividends, or earnings from inherited investments
If you inherit:
- fixed deposits
- dividend-paying shares
- bonds
Then the income earned (interest/dividend) must be declared and taxed as per applicable rules.
1. Selling Inherited Assets Can Trigger Capital Gains Tax
The biggest tax issue comes when you sell inherited assets.
If you sell inherited:
- property
- gold/jewellery
- shares or mutual funds
✅ capital gains tax may apply.
Important rule:
For calculating capital gains, the “cost of acquisition” is based on what the original owner paid, not the value when you inherited it.
📌 Even if you inherited it recently, the tax calculation uses the previous owner’s purchase price and holding period.
2. Short-Term vs Long-Term Gains: Key Rules to Know
Your tax depends on whether the asset is treated as short-term or long-term.
✅ Property & Gold
- Held for 24 months or less → Short-Term Capital Gain (STCG)
- Held for more than 24 months → Long-Term Capital Gain (LTCG)
How it affects tax:
✅ STCG: taxed as per your normal income slab rate
✅ LTCG: taxed at 12.5% (without indexation)
📌 This LTCG rule is applicable for sales after July 23, 2024 (as per updated tax rules).
3. How to Save Tax Using Exemptions (Legal Ways)
You may be able to reduce or avoid tax after selling inherited assets by reinvesting the gains.
✅ Section 54F (Buy a new residential house)
If you sell an inherited asset and invest the gains in buying a residential property, you may claim exemption under Section 54F (subject to conditions).
✅ Section 54EC (Invest in government-approved bonds)
You can also save tax by investing in bonds such as:
- NHAI bonds
- REC bonds
📌 Limit: Up to ₹50 lakh
📌 Time limit: Within 6 months of sale
These options can significantly lower your long-term capital gains tax.
4. Gifted Your Inherited Assets? Be Careful
Many people gift inherited property, jewellery, or investments to friends or extended family—but tax rules matter here too.
✅ Gift to non-relatives
If you gift assets worth more than ₹50,000 in a financial year to a non-relative, then:
⚠️ the recipient may have to pay tax on the full amount as “Income from Other Sources”.
✅ Gift to close relatives
Gifts to specified relatives are fully exempt, including:
- spouse
- parents
- siblings
- children
✅ No tax applies no matter how large the amount is.
5. Can NRIs Inherit Property in India? Yes ✅
NRIs are allowed to inherit property in India under FEMA rules.
✅ No prior RBI permission is required
✅ No inheritance tax applies
However, NRIs must note:
- rental income is taxable in India
- capital gains tax applies if they sell the property
- repatriation of sale proceeds is allowed under FEMA (subject to limits)
6. Life Insurance Payouts Are Completely Tax-Free ✅
If you receive money as a nominee from a life insurance policy after someone’s death:
✅ it is fully exempt from income tax under Section 10(10D)
(assuming policy conditions are met)
Even though it’s tax-free, it’s still smart to keep it documented properly for records.
Keep Your Paper Trail Ready (Very Important)
To avoid tax confusion later, keep proper documents like:
✅ original purchase proof (of the deceased owner)
✅ will or succession certificate
✅ inheritance proof/transfer documents
✅ valuation report (if needed)
✅ sale deed + broker receipts (if sold)
These documents help you:
- calculate capital gains correctly
- prove holding period
- stay compliant with tax rules
- reduce risk of disputes or notices
Final Takeaway
✅ Inheritance is tax-free in India.
But taxes may apply when you:
- earn rent from inherited property
- receive interest/dividends from inherited investments
- sell inherited property, gold, shares
- gift inherited assets to non-relatives
If you plan properly, exemptions like 54F and 54EC can help reduce your tax liability legally.
