Income Tax payment has always been a complicated subject for layman. We often do not know while paying the Income Tax that what would come under the ambit of Tax and what would not. Often, this leads to confusion and lot of paperwork. One of the most common questions that is asked by an Income Tax Payer is that whether the tax should be paid on the sale of Inherited Property or not.

Income Tax on Inherited Property
While some Individuals think that the sale proceed from the inherited property is fully exempt, other think that it is fully taxable. So, the fact is that there is no tax liability tax at the incidence of inheritance but the profit made on the sale of an inherited house would be taxable as capital gains.
How the Capital Gains Is Calculated?
Capital Gain could be both long term and short term subjected to the period for which the asset was held. If an individual is holding the house for more than 36 months, it would be considered as the long-term asset. This 36 months include the time for which the house was held by the taxpayer along with the time for which it was held by the previous owner who had paid for it.
In case the house has been held for less than 36 months, the actual cost of acquisition clubbed with the cost of improvement would be subtracted and the residual amount would be treated as the short-term gains. The short-term gains realized out of the incident would be taxable as per the tax slab applicable to the tax payer. In case the combined holding period is more than 36 months, the cost of acquisition and the cost of improvement can be deducted by the cost inflation. You can arrive at the cost inflation multiplier based on the cost inflation index of the year of purchase and the year of sale.
What is Cost of Acquisition?
It would be the amount paid by the previous owners to purchase the house. So for instance, if the father of an Individual has inherited the house from his father who purchased the house at One Lakh INR, then the cost of acquisition for all the tax purpose would be that One lakh rupees. If the house has been inherited before April 1st 1981, the fair market property value would be calculated as on April 1st 1981 for the ‘cost of acquisition’ and apply the cost inflation index multiplier on that value.
Saving Tax On the Long Term Capital Gain
In case of long term asset, there are two ways in which you can save the taxes. The first solution is to invest the capital gains if you have bought the house within two years or construct one house within three years. Second option is to invest the capital gains of maximum Rs 50 lakhs in bonds of NHAI or REC within six months of its accrual