COURTKUTHEHRY SPECIAL ON IMPORTANCE OF APRIL 1, 2001, IN SELLING ANCESETRAL PROPERTIES
Selling Ancestral Property: Why April 1, 2001, Fair Value Matters for Capital Gains
Income Tax Rules Allow FMV Option for Pre-2001 Assets
Relief for Families Selling Inherited Property Across Generations
By Our Legal Reporter
New Delhi: February 07, 2026:
Inheritance of property is common in India, but selling ancestral assets often raises questions about taxation. Families who sell land, houses, or commercial property inherited from parents or grandparents must pay capital gains tax. The government has provided a special rule: for properties acquired before April 1, 2001, taxpayers can choose to calculate gains using the fair market value (FMV) as on that date instead of the original purchase price. This rule is crucial because it adjusts for inflation and ensures that sellers are not unfairly taxed on decades-old property values.
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Why April 1, 2001, Is Important
- Legal provision: Section 55 of the Income Tax Act allows taxpayers to adopt FMV as on April 1, 2001, for assets acquired before that date.
- Reason: Property values before 2001 were much lower. Using the original cost would result in artificially high capital gains and higher tax.
- Benefit: FMV option reduces taxable gains, offering relief to families selling ancestral property.
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Rules for Capital Gains on Ancestral Property
- Definition of ancestral property
- Property inherited from parents, grandparents, or great-grandparents.
- No tax at the time of inheritance. Tax applies only when the property is sold.
- Cost of acquisition
- For inherited property, the cost is the same as that paid by the original owner.
- If acquired before April 1, 2001, taxpayer can choose FMV as on that date.
- Indexation benefit
- After determining cost, taxpayers can apply Cost Inflation Index (CII) to adjust for inflation.
- This further reduces taxable capital gains.
- Exemptions available
- Section 54: Exemption if gains are reinvested in another residential property.
- Section 54EC: Exemption if gains are invested in specified bonds (like NHAI or REC).
Example Calculation
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Suppose a family inherited land purchased in 1975 for ₹50,000.
- FMV as on April 1, 2001: ₹10 lakh.
- Sale price in 2026: ₹1.5 crore.
- Indexed cost (using CII): approx. ₹30 lakh.
- Taxable capital gain: ₹1.2 crore (instead of ₹1.45 crore if original cost was used).
This shows how adopting FMV significantly reduces tax liability.
Significance for Families
- Fairness: Prevents taxation on outdated values.
- Clarity: Provides a clear benchmark date for calculations.
- Relief: Helps families preserve wealth when selling ancestral assets.
- Encouragement: Promotes compliance by making tax rules more reasonable.
Expert Views
- Tax professionals: Say the FMV rule is essential for fairness in long-term capital gains.
- Legal analysts: Note that CBDT has clarified procedures for determining FMV, often using government-approved valuers.
- Financial advisors: Recommend reinvesting gains in property or bonds to maximize exemptions.
Conclusion
The rule allowing taxpayers to adopt fair market value as on April 1, 2001, is a cornerstone of India’s capital gains tax regime. It ensures that families selling ancestral property are taxed fairly, considering inflation and rising property prices. With proper planning, taxpayers can minimize liability and preserve wealth across generations.
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- Selling ancestral property capital gains India
- Fair market value April 1, 2001, rule
- Capital gains tax inherited property India
- Income Tax Act Section 55 FMV rule
- Indexation benefit ancestral property sale
- Tax exemptions Section 54 Section 54EC India
- Rules for selling inherited property India
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