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Inherited house bought by father and want to sell it? Income tax rules explained


Although the legislation states that indexation benefits begin on the date you purchase the property, some Income Tax Tribunals have allowed indexation benefits to begin on the date the prior owner who paid for it acquired it.



In the case of assets received via gift or inheritance, the taxpayer's cost of acquisition is the price paid by the prior owner. As a result, the cost of your 1/3 share obtained by inheritance would equal the proportionate cost paid by your father. The tax payer is entitled to replace the fair market value of the asset as of 1st April 2001 for assets bought before that date.

Because the house was purchased before this date, you can use the fair market value of a 1/3 share in the house on April 1, 2001 to calculate capital gains. To determine the house's fair market value on April 1, 2001, you must obtain a valuation report from a registered valuer. Under no circumstances can the property's fair market value exceed the circle rate or stamp duty rate.



Though the legislation states that indexation begins on the date you purchase the property, some Income Tax Tribunals have allowed indexation to begin on the date the prior owner who paid for it purchased it. So, as of April 1, 2001, you can safely apply the cost inflation index to the fair market value of your 1/3 part of the house.

In terms of the remaining 2/3 share of the house, your cost of acquisition will be the amount paid by you, and the advantage of indexation will begin from the year in which you purchased the respective shares in the property.

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