Selling Inherited Property in India as an NRI: The Cost Basis You Inherit, the TDS Trap, and Getting the Money Out

Your mother passes away and leaves you the family flat in Bengaluru. You live in Toronto, you have no plans to move back, and a year later you agree to sell it for Rs 2,40,00,000. The first surprise is not the tax. It is the buyer's bank telling you it will withhold roughly Rs 35,88,000 before the proceeds ever reach your NRO account. The second surprise lands when your chartered accountant works out the actual tax on the gain and it comes in at well under that figure. The whole subject of this guide is the gap between those two numbers, and how to close it before completion rather than a year later through a refund cheque.

The 30-second answer: When an NRI sells inherited Indian property, the cost of acquisition is the previous owner's cost, and the holding period includes the previous owner's (Sections 49(1) and 2(42A)), which almost always makes the gain long-term, taxed at 12.5% without indexation under Section 112(1)(c) for transfers on or after July 23, 2024. If the original owner bought before April 1, 2001, you may substitute the fair market value as on April 1, 2001 (capped at the 2001 stamp-duty value) as your cost. The buyer must deduct TDS under Section 195 at up to 14.95%, usually on the full sale value unless you obtain a Section 197 / Form 13 certificate. Shelter the gain with Section 54, 54EC (Rs 50 lakh cap) or 54F. Repatriate up to USD 1 million per financial year from the NRO account with proof of inheritance.

Filing your return this year? This guide is part of our hub on filing your Indian tax return as an NRI for AY 2026-27. Read that for the full ITR-2 walkthrough, the deadlines, and how a property gain and its TDS credit slot into the return.

Inherited property sits at the junction of three rules most sellers meet for the first time only when the deal is already moving: the cost basis you inherit from the person who left it to you, the holding clock that was running long before you owned anything, and a Section 195 TDS regime that treats you very differently from a resident seller. Each is worth lakhs in either direction. What follows is the order they actually bite: why inheriting is not taxed, how the cost and holding period carry over, the April 1, 2001 valuation lever, the no-indexation penalty that is genuinely an NRI tax, the TDS trap and the Form 13 fix, the exemptions, and how to get the proceeds out.

You inherit tax-free, and you inherit the previous owner's tax history

India abolished estate duty, the nearest thing it had to an inheritance tax, in 1985. Receiving property by will or succession triggers nothing: no income to declare, no capital gain on the inheritance itself, no threshold above which a charge kicks in. The tax conversation begins only at the sale.

This needs saying because the country you live in may tax the same inheritance under its own rules, and NRIs routinely conflate the two. The United Kingdom is the live trap. From April 2025 the UK moved its inheritance tax from a domicile test to a residence-based test: an individual resident in the UK for at least 10 of the previous 20 tax years is a long-term resident, and their worldwide estate, including an Indian flat, falls into the UK IHT net at 40% above the nil-rate band. A settled Indian expat in London can therefore find the family Chennai house exposed to UK inheritance tax even though India charges nothing on it. The United States runs its own federal estate tax with its own thresholds; the UAE charges nothing. These sit outside the Indian computation and are a reason to take cross-border estate advice rather than assume "no Indian inheritance tax" ends the matter. On the Indian side the headline holds: you inherit clean, and everything below is about the sale.

Your cost is what the original buyer paid, not what the flat was worth when you inherited it

This is the most expensive thing people get wrong, because the instinct is exactly backwards. The natural assumption is that your cost is the value on the day you inherited, the day the property was, in a sense, "given" to you. It is not.

Section 49(1) carries the original owner's cost of acquisition forward to you. The price your father, mother, or grandparent actually paid becomes your cost. If your father bought a Pune flat in 2007 for Rs 45,00,000, your cost when you sell is Rs 45,00,000, not the Rs 1,80,00,000 it was worth on the day he died. The gain is measured from his purchase price, and that is precisely why inherited property throws up such large taxable gains: you are taxed on decades of appreciation that accrued before the asset was ever yours.

Trace the chain back to the last person who actually paid for the property. If it went from grandfather to father to you, all by inheritance or gift, the cost is still the grandfather's original purchase price, because Section 49(1) looks through every transfer that was itself a gift or inheritance until it reaches an acquisition for consideration. The same look-through covers the cost of improvement: genuine capital additions the previous owner made, a structural extension, a new floor, a boundary wall, count if you can prove them, as do improvements you made after inheriting, but repairs and routine maintenance do not. The Assessing Officer will want the bills and contractor invoices, so the practical job is documentary: find the original purchase deed and the improvement records first, because a missing deed forces you onto a worse number.

The holding clock was his, which is why your gain is almost always long-term

The second carry-over rule usually works in your favour, and most NRIs do not realise it applies. Section 2(42A) treats the previous owner's holding period as part of yours. The clock did not reset on inheritance; it has been running since the previous owner acquired the property.

For immovable property the gain turns long-term once held for more than 24 months, and because you inherit the previous owner's years, inherited property is long-term by the time most people sell. A flat your mother bought in 2009 and you sell in 2026 has a 17-year holding period even if you personally held it for two. That is not cosmetic. A short-term property gain is added to your total income and taxed at slab rates up to 30% plus surcharge and cess; a long-term gain is a flat 12.5% under Section 112(1)(c). The combined holding period is the single mechanism that drops you from the slab to 12.5%, automatically, for any normal inherited family home. It fails only in the rare case where the previous owner also held briefly, bought a few months before passing, and you sell almost immediately, pushing the total under 24 months. Check the original purchase date, not the date the property was mutated to you, which is irrelevant to the holding period.

The April 1, 2001 valuation is the lever that pays for itself on old property

For anything the original owner bought before the turn of the century, this is the most valuable computation choice you have. If the original acquisition predates April 1, 2001, you may substitute the fair market value of the property as on April 1, 2001 for the original cost, under Section 55(2)(b). A 1990s purchase price is tiny next to the 2001 value, so the substitution can cut the gain dramatically.

Two conditions decide whether and how much it helps. First, eligibility: the substitution exists only when the original buy predates April 1, 2001. If your father bought in 2003, there is no 2001 option and you use his actual 2003 cost; the 2001 figure is a base-year reset, not a free reval for every property. Second, the cap most people miss, inserted by the Finance Act 2020 into the proviso to Section 55(2)(b) and effective from assessment year 2021-22: the fair market value you substitute cannot exceed the stamp-duty value of the property as on April 1, 2001, where that figure is available. Before that amendment, aggressive valuers routinely inflated 2001 values to manufacture cost; now the substituted figure is bounded by what the property would have been assessed at for stamp duty in 2001. In practice you commission a government-approved registered valuer for a fair-market-value-as-on-April-1-2001 report that respects the ceiling. A clean valuer's report survives scrutiny; a circle-rate printout will not. The report costs a few thousand rupees and routinely saves lakhs, so this is not the line item to economise on.

You do not get the resident's indexation choice, and on old property that is a real tax

Here is the part that catches long-term holders off guard, and it is the honest read on the post-2024 regime. After the July 23, 2024 Budget, the rate on long-term property gains was cut from 20% to 12.5%, but indexation, the adjustment that inflated your cost for inflation and shrank the gain, was removed at the same time. To soften the transition, the second proviso to Section 112(1) gave sellers of land or buildings bought before that date a choice: pay the lower of 12.5% without indexation or the old 20% with indexation. For a property held twenty or thirty years, indexation can lift the cost several times over and gut the gain.

That choice was written for resident individuals and Hindu Undivided Families only. As an NRI you do not get it. You are taxed at a flat 12.5% without indexation under Section 112(1)(c), regardless of when the previous owner bought. Inherited property is, by definition, usually old, and old property is exactly where indexation would have helped most, so this is where the penalty bites hardest.

Put a number on the gap. Take a property that merely tracked inflation: a 1998 purchase for Rs 40,00,000 sold in 2026 for Rs 1,20,00,000, ignoring expenses, in the hands of two siblings, one resident and one NRI. The unindexed gain is Rs 80,00,000, and the NRI pays 12.5%, Rs 10,00,000. The resident indexes the cost up to roughly Rs 1,12,00,000, leaving an indexed gain of just Rs 8,00,000, and pays 20% of that, Rs 1,60,000. Same flat, same price, and the NRI pays Rs 8,40,000 more purely from being denied the option. The lesson is not that 12.5% is always worse; on a fast-appreciating flat the resident would pick the 12.5% route too and the outcomes match. It is that the slower a property grew relative to inflation, the more the missing indexation costs you, and a long-held, modestly-appreciating inherited home is precisely the worst case. There are professional commentaries and tribunal arguments pushing back on this resident-only line, but as the department reads the law in June 2026, the indexation choice does not extend to non-residents. Treat the flat 12.5% as the floor and plan exemptions around it; do not bank on a contrary position unless you are prepared to litigate it.

The TDS that hits your full sale value, and the certificate that stops it

This is where inherited-property sales go wrong in cash-flow terms, and it has nothing to do with the rate. When you sell to a resident buyer, the buyer, not you, must deduct tax at source under Section 195 and deposit it against your PAN. This is a heavier regime than a resident-to-resident sale, where the buyer deducts a flat 1% under Section 194-IA and the matter ends. The instant the seller is an NRI, Section 194-IA falls away and Section 195 takes over. (One 2026 simplification: the buyer now deposits this against their own PAN rather than having to obtain a TAN first, which removes a process step but changes nothing about the amount.)

For a long-term gain on a transfer on or after July 23, 2024, the Section 195 rate is 12.5% plus surcharge plus 4% cess. The surcharge on this category of gain is capped at 15%, so even at the top end the maximum effective rate is 14.95%, and that is the rate that should apply to your gain.

The trap is in the base, not the rate. The statute lets the buyer deduct on the gain, but the buyer cannot compute your gain: they do not hold the previous owner's purchase deed, do not know the April 1, 2001 fair market value, and cannot lawfully take your word for it, because if the deduction falls short the buyer, not you, becomes the assessee in default and is personally liable for the shortfall plus interest. Faced with that exposure, the buyer's safe move is to deduct on the entire sale consideration. On a Rs 2,40,00,000 sale, 14.95% of the full price is roughly Rs 35,88,000, even where the true tax is a fraction of that. The money is not lost, it sits with the government and returns when you file ITR-2, but waiting a year for a refund of lakhs while living abroad is a poor plan when there is a clean fix at source.

Section 197 is the fix. You apply to the Assessing Officer on Form 13 through the income-tax portal, before the sale, for a certificate authorising the buyer to deduct at a lower rate computed on your actual gain rather than the gross consideration. You submit the gain computation, the previous owner's purchase deed (or the April 1, 2001 valuation report), proof of inheritance, the draft sale agreement, and the buyer's details. If satisfied, the officer issues a certificate naming the exact rupee amount or rate, the buyer deducts strictly to it, and the over-deduction never happens. Two things to plan for. Timing: Form 13 realistically takes four to eight weeks, sometimes longer, so start well before completion, because a certificate that arrives after registration is useless. Exemptions: if you intend to claim Section 54, 54EC, or 54F, build them into the computation, and the officer can certify TDS on the net taxable gain after exemptions, often bringing the certified figure close to nil. The mechanics are in our guide to the lower-TDS certificate and Form 13.

The exemptions that shrink the gain, and how to fold them into the certificate

An NRI claims the same long-term capital gains exemptions as a resident; for inherited property, three matter, and the choice between them turns on what you reinvest and how much.

Section 54 is the natural route for a residential house, which most inherited property is. Reinvest the capital gain (not the whole sale value) in another residential house in India, bought one year before to two years after the sale or constructed within three years, and to that extent the gain is exempt. Section 54F is the harder cousin: it applies when what you sold was not a residential house, for example inherited land or a commercial unit, and requires reinvesting the entire net sale consideration, not just the gain, into one residential house, with partial reinvestment giving only proportionate exemption. Section 54EC is the cleanest tool when you do not want to buy more property: invest the long-term gain, up to Rs 50 lakh per financial year, in NHAI or REC capital-gains bonds within six months of the sale. The bonds carry a five-year lock-in and a modest coupon, but the exemption is immediate and certain.

You can combine them, for instance routing Rs 50 lakh of gain into 54EC bonds and reinvesting the rest under Section 54, with the 54 and 54F reinvestment exemption itself capped at Rs 10 crore. Whatever the plan, fold it into the Form 13 application so the certified TDS reflects the sheltered position rather than the gross gain; otherwise you over-pay at source and chase the difference through a refund. The full mechanics, including the Capital Gains Account Scheme for parking proceeds not yet reinvested by the filing deadline, are in our guide to the capital gains exemptions under Sections 54, 54EC and 54F.

What the arithmetic actually looks like end to end

Put the post-2007 case together first, where there is no 2001 option. Anjali is an NRI in Dubai. Her father bought a flat in Gurugram in 2007 for Rs 50,00,000 and made a documented structural extension in 2012 for Rs 10,00,000. He passed away in 2022, she inherited the flat, and she sells it in May 2026 for Rs 2,40,00,000, paying Rs 4,00,000 in brokerage. Because the father bought in 2007, after April 1, 2001, there is no fair-market-value substitution; she uses his actual cost. The full value of consideration is Rs 2,40,00,000, less his carried-over cost of Rs 50,00,000 under Section 49(1), less the Rs 10,00,000 improvement, less Rs 4,00,000 of transfer expenses, leaving a long-term capital gain of Rs 1,76,00,000. The holding period runs from 2007 under Section 2(42A), comfortably long-term, so the rate is 12.5% with no indexation option. Tax at 12.5% is Rs 22,00,000; surcharge at 15% (the gain crosses Rs 1 crore, and 15% is the cap for this category) adds Rs 3,30,000; 4% cess on the Rs 25,30,000 subtotal adds Rs 1,01,200, for a total of Rs 26,31,200.

Now watch the TDS. Without a Section 197 certificate, the buyer's bank deducts 14.95% on the full Rs 2,40,00,000, that is Rs 35,88,000, against a real liability of Rs 26,31,200. Anjali has over-paid by Rs 9,56,800 that she recovers only by filing ITR-2 and waiting. With a Form 13 certificate obtained before the sale, the officer certifies TDS on the real gain, the buyer deducts the Rs 26,31,200 actually due, and the Rs 9,56,800 never leaves her hands. Had she also routed Rs 50,00,000 of the gain into 54EC bonds within six months and built that into the Form 13 computation, the certified TDS would have fallen further still and her repatriable proceeds risen to match.

The pre-2001 case shows what the valuation lever is worth. Vikram is an NRI in London. His grandfather bought a house in Chennai in 1996 for Rs 8,00,000; it passed to Vikram's father and then to Vikram in 2023. He sells in June 2026 for Rs 3,00,00,000 with Rs 5,00,000 of brokerage and legal costs, and commissions a registered valuer's report putting the fair market value as on April 1, 2001 at Rs 22,00,000, within the 2001 stamp-duty ceiling. Because the original buy predates April 1, 2001, he substitutes that Rs 22,00,000 for the grandfather's Rs 8,00,000. The consideration of Rs 3,00,00,000, less the Rs 22,00,000 substituted cost under Section 55(2)(b), less Rs 5,00,000 of expenses, gives a long-term gain of Rs 2,73,00,000. Tax at 12.5% is Rs 34,12,500; 15% surcharge adds Rs 5,11,875; 4% cess on the Rs 39,24,375 subtotal adds Rs 1,56,975, a total of Rs 40,81,350.

Here is what the 2001 substitution bought him. Had Vikram used the grandfather's Rs 8,00,000 cost instead, the gain would have been Rs 2,87,00,000 and the total tax about Rs 42,90,650. The valuation report saved roughly Rs 2,09,300 for a few thousand rupees of valuer's fee. And on TDS, without a certificate the buyer would deduct 14.95% on the full Rs 3,00,00,000, Rs 44,85,000, against the Rs 40,81,350 actually due; the Rs 4,03,650 over-deduction is recoverable only through ITR-2, whereas a Form 13 with the 2001 report attached would have capped the deduction at the real figure from the start.

A decision table for the move that fits your property

Your situation	What governs the tax	The move that pays
Original owner bought after April 1, 2001	Carried-over actual cost (Section 49(1))	Find the purchase deed and improvement bills before listing
Original owner bought before April 1, 2001	FMV-as-on-April-1-2001 option (Section 55(2)(b)), capped at 2001 stamp-duty value	Commission a registered valuer's report; almost always worth it
Any sale, you want cash, not refunds	Section 195 TDS on full value unless certified	Apply for Section 197 / Form 13 four to eight weeks before completion
Reinvesting in another house	Section 54 (gain) or 54F (whole consideration)	Build the exemption into Form 13 so certified TDS drops
Not buying property, want certainty	Section 54EC bonds, Rs 50 lakh cap, six-month window	Reserve the bond allocation; pair with 54 if the gain is larger
Several heirs on one deed	Each taxed on their share	Each files a separate Form 13 and has a separate USD 1 million limit

Getting the money out: the NRO account and the USD 1 million limit

Once the sale completes and tax is settled, the proceeds land in your NRO account first, because inherited-property proceeds are not directly creditable to an NRE account. From there you repatriate. An NRI can repatriate up to USD 1 million per financial year, April 1 to March 31, from the NRO account. This is a per-person ceiling under the FEMA framework with no lifetime cap, and it pools all outward remittances for the year, so rental income, interest, and dividends you also send out count against the same USD 1 million. If the proceeds exceed it, you remit the balance next financial year, or apply to the Reserve Bank of India for specific approval to send more in one year. The per-person nature is why co-heirs matter: three siblings on one deed have three separate USD 1 million limits, so split the deed and proceeds cleanly by share.

For inherited property the bank wants proof you inherited it lawfully: a will, a succession certificate, a legal heir certificate, or a registered gift deed, plus evidence the property was mutated into your name before the sale. This does the work that a purchase FIRC does for property you bought with foreign funds. If you had bought the flat with money remitted from abroad, repatriation up to the original investment would rest on the FIRC, the foreign inward remittance certificate, proving the inward funds. For inherited property there is no purchase FIRC, because you never paid, and the inheritance proof takes its place. Do not let a bank officer tell you a missing FIRC blocks an inherited-property remittance; it is the wrong document for this case.

The remittance paperwork itself has just changed. For taxable foreign remittances above Rs 5 lakh in a financial year, the long-standing requirement was the remitter's online declaration on Form 15CA, supported by a CA's certificate on Form 15CB confirming Indian tax had been paid. From April 1, 2026, that pair is replaced by Form 145 (the remitter's declaration) and Form 146 (the CA's certificate) under the Income-tax Act, 2025 framework. The substance is unchanged, certify the tax position, then remit, but the form numbers and the portal flow are new and the transition turns on the date of remittance, so confirm with your CA and your bank which forms apply to your specific date. The full process, including how the bank handles the foreign-exchange conversion, is in our guide to the NRO repatriation process.

Where your country of residence changes the picture

The Indian computation above is the same whether you live in Dubai, London, Toronto, or New York. What differs is the second tax bill at home and the credit you can claim against it. India taxes the gain on Indian immovable property first under Article 13 (or its equivalent) of every relevant treaty; real estate is the one asset class no DTAA takes out of India's hands, unlike listed shares where the UAE treaty can do exactly that. So the Indian 12.5% is unavoidable, and the only question is how your home country treats it.

A UAE resident is the cleanest case: no personal capital gains tax there, so the Indian tax is the whole story and the focus is purely on the Form 13 certificate and the repatriation. A US resident reports the same gain to the IRS, which taxes long-term gains at up to 20% plus the 3.8% net investment income tax, and claims a foreign tax credit for the Indian tax, so the outcome is the higher of the two systems. A UK resident faces two issues. On the gain, the UK taxes it and credits Indian tax, but the credit under the India-UK treaty is restricted to 15%, so an Indian effective rate near the 14.95% ceiling is broadly covered while a lower Indian rate after exemptions can leave UK tax to top up. On the inheritance itself, the post-April-2025 residence-based IHT rule above can already have exposed the flat to UK inheritance tax before you ever sold, a separate and often larger number. A Canada resident reports the gain and claims a foreign tax credit similarly. The common thread: the Indian tax is the floor everywhere, the home-country tax is the higher of the two systems, and the planning that moves the number, the cost basis, the 2001 valuation, the exemptions, and the certificate, is all on the Indian side. See foreign tax credit and Form 67 for the Indian side and a local adviser for the home return.

Edge cases worth checking before you sign

The previous owner also held only briefly. The combined holding period usually guarantees long-term treatment, but not when the previous owner bought just months before passing and you sell almost immediately; the total can fall below 24 months, making the gain short-term and slab-taxed. Check the dates before you assume 12.5%.

Agricultural land. Rural agricultural land meeting the statutory tests is not a capital asset, so its sale produces no capital gain. But the definition is narrow, turning on distance from municipal limits and local population, and most urban or peri-urban "agricultural" land does not qualify. Verify the classification before assuming exemption.

Inherited years ago, sold now. Some NRIs inherited a decade back and only sell today. Nothing changes: the cost is still the original owner's, and the holding clock still runs from their acquisition, not from the date the property was mutated to you.

Disputed or unmutated title. If the property has not been mutated into your name, or the will is contested, both the sale and the repatriation stall, because the bank will not remit inherited proceeds without clean inheritance proof and mutation. Resolve the title before you market the property, not after a buyer is waiting.

The closing read

The honest read is that selling inherited property as an NRI is rarely about the rate and almost always about basis and timing. The 12.5% headline under Section 112(1)(c) is not what hurts. Two avoidable things are: letting Section 195 TDS strike the full sale value because you started the Form 13 application too late, and overstating the gain because you never pinned down the previous owner's cost or, for pre-2001 property, commissioned a proper April 1, 2001 valuation.

So for the common case, here is the sequence I would actually run. Find the original purchase deed and the improvement records first, because they set your floor. If the original buy predates April 1, 2001, get a registered valuer's report and use the 2001 value, capped at the stamp-duty figure. Decide your exemption, Section 54 if you are buying another house, 54EC bonds up to Rs 50 lakh if you are not, and build it into a Section 197 / Form 13 application filed four to eight weeks before completion so the TDS is certified on your real, sheltered gain rather than the gross price. Line up the inheritance proof, a will or succession or legal heir certificate, so the USD 1 million repatriation clears without a hold. Do that and the money keeps working instead of parked with the department waiting on a refund.

The one place to be clear-eyed is the indexation gap. As an NRI you do not get the resident's 20%-with-indexation choice, and on a flat your parent bought in the 1990s that is a genuine cost, sometimes several lakhs, that no amount of planning makes disappear. Treat the flat 12.5% on the unindexed gain as the floor, plan your exemptions around it, and if the property merely tracked inflation rather than racing ahead of it, factor that lost option into whether you sell at all or hold and let it out. If your sale is large, spans multiple heirs, or carries a home-country estate-tax overlay, that is the point to pay a cross-border CA, not to rely on a blog, this one included.

Related guides

• Filing your Indian tax return as an NRI for AY 2026-27
• NRI inheritance and estate tax in India
• Selling property in India as an NRI: TDS, capital gains, exemptions, repatriation
• Capital gains exemptions under Sections 54, 54EC and 54F
• The lower-TDS certificate and Form 13
• TDS for NRIs and how to claim refunds
• Capital gains tax for NRIs on shares and mutual funds
• The NRO repatriation process, step by step
• FIRC: the foreign inward remittance certificate explained
• NRI estate planning and wills
• Buying property in India as an NRI
• Tax on Indian rental income for NRIs
• Foreign tax credit and Form 67

Disclaimer

This guide is general information, not tax, legal, or investment advice. Capital gains rules, TDS rates, surcharge thresholds, exemption limits, repatriation limits, and remittance form requirements change, and their application depends on your specific facts and your country of residence. The fair-market-value-as-on-April-1-2001 option requires a valuation that respects the statutory stamp-duty cap, and the resident-only indexation choice for pre-July-2024 property is a position the law currently does not extend to NRIs, an area where professional commentary and tribunal decisions continue to develop. Verify the current rules and the prevailing form numbers (Form 145 and Form 146 from April 1, 2026) before acting, and consult a qualified chartered accountant and, where estate or inheritance tax in your country of residence is in play, a cross-border tax adviser, before you transact.