Inherited Property: How It Passes to Heirs and How Each Stage Is Taxed

This article explains how property passes to legal heirs and how the income tax position changes between receipt, letting and sale.

It matters because heirs commonly assume that an inheritance either brings no tax at all or brings tax at the moment of receipt. The correct position is that the receipt is exempt, but the income earned afterwards and any later sale are taxable in the heir's hands. Both the Income Tax Act, 2025 and the Income Tax Act, 1961 are referred to below, since heirs and advisers meet provisions of each.

Where your client stands: the property has just been inherited

What the property is

Property earned by a person from his or her own income is self-acquired. When legal heirs receive it after the owner's death, it is treated as inherited (often called ancestral) property in the heirs' hands. A house bought by a father and received by his son after the father's death is an example. Property passing from grandfather to father and then to grandchildren is treated in the same way.

Inherited assets may be movable, such as bank deposits, cash, provident fund, shares, mutual funds and insurance policies, or immovable, such as land, plots and houses.

How it passes

Property passes to heirs in one of two ways: under a will, or by succession where there is no will.