Q.1047 How to determine Fair

Market Value (FMV) of inherited

property for calculating Capital

Gain

Question: After reviewing the information on your and other websites, it is clear that if I sell my inherited property located in India, I need to know the cost of the property to my father from whom I inherited the property. The problem here is that my father inherited the property from his mother (my grandmother). In this case, is my acquisition cost the FMV of the property on the date that my father inherited the property or will it be the FMV of the property on April 1st, 1981 since my grandmother acquired the property before 1981? Thanks for your feedback. Abid Saigo Answer: When property is inherited the person who inherits the property is actually not paying any money for the property. Hence to calculate capital gains when the property is sold by the person who inherited the property, the cost of acquisition of the previous owner is taken into consideration and the cost of acquisition of the previous owner becomes the cost of acquisition of the person inheriting the property. Cost of acquisition can be calculated only when property is purchased and not acquired by way of inheritance. When your father inherited the property from your grandmother, his cost was zero. Perhaps your grandmother may have also acquired the property through inheritance? My understanding is that if purchase price is unknown [when property was actually paid for and not inherited] then in case of properties where indexing numbers are not available there is an option of using the fair market value as on April 1, 1981. On the other hand if original price is known then that can be used. Where price of very old properties are taken to reach fair market valuation, keep in mind that old properties usually went through a lot of improvements as time went by. The cost of acquisition AND improvements using the applicable cost inflation index can help when calculating capital gain at time of sale. Consult a qualified property valuation service provider or seek help from a Chartered Accountant (CA) for guidance in calculating capital gains.