When someone inherits a house and later decides to sell it, tax may not be the first thing on their mind. But one tax rule can easily catch sellers and buyers off guard: Tax Deducted at Source (TDS).

In a property sale, the buyer may be required to deduct TDS from the sale consideration before paying the seller. If the buyer fails to deduct or deposit the required TDS, they may face interest and penalties. For the seller, incorrect TDS compliance can also lead to delays or complications in claiming the tax credit.

The fact that the property was inherited does not, by itself, change the TDS rules. What matters is who is selling the property and the nature of the transaction. The rules can differ significantly depending on whether the seller is a resident or a Non-Resident Indian (NRI).

This blog explains how TDS works when an inherited property is sold, when TDS applies, the applicable rates, which forms and compliance requirements are involved, and what changes when the seller is an NRI.

Key Highlights

• TDS applies to any property sale worth Rs 50 lakh or more, irrespective of whether the seller bought the property or inherited it

• It is the buyer's responsibility to deduct TDS, not the seller's

• For a resident seller with a valid PAN (Permanent Account Number), the TDS rate is 1 percent.

• If the seller does not share their PAN, the buyer must deduct 20 percent instead

• When an NRI sells inherited property, the TDS rate is 12.5 percent or 30 percent depending on how long the property was held

• For NRI sellers, there is no minimum sale value. TDS applies even on an Rs 20 lakh sale

• The holding period counts from when the original owner first bought the property, not from when it was inherited. This usually means the sale could typically qualify for the lower long-term capital gains rate

Who Deducts TDS on the Sale of Inherited Property and How Much?

Most people assume the seller is responsible for paying TDS. That is not correct.

The buyer deducts TDS from the sale amount before making payment and deposits that amount with the Income Tax Department within 30 days from the end of the month in which the sale was made.

For the ₹50 lakh threshold, you need to consider both the sale consideration and the stamp duty value. TDS applies if either one is ₹50 lakh or more.For example, if you agree to pay Rs 47 lakh but the stamp duty value is Rs 53 lakh, TDS still applies.

What Forms Are Used for Payment of TDS on Sale of Inherited Property?

For payments made on or before 31 March 2026 (Income Tax Act, 1961):

For payments made on or after 1 April 2026 (Income Tax Act, 2025, which replaced the 1961 Act):

TDS must be deposited within 30 days from the end of the month in which it was deducted.

For a sale between two resident Indians, the buyer does not need a TAN (Tax Deduction Account Number). The buyer's PAN is enough. TAN is only required when the seller is an NRI.

How Is the Cost Calculated for the Sale of Inherited Property?

TDS and capital gains are two separate calculations. TDS is generally deducted on the higher of the sale consideration and the stamp duty value. The seller's actual tax liability, however, depends on the capital gain, for which the property's original cost and holding period are important.

For an inherited property, both the cost of acquisition and the holding period are generally linked to the original owner, not the person who inherited the property.

The cost: The cost used for calculating capital gains is generally the amount the original owner paid to acquire the property.

The holding period: The holding period starts from the date the original owner acquired the property, not from the date the current seller inherited it.

This distinction matters because it determines whether the gain is a Long-Term Capital Gain (LTCG) or Short-Term Capital Gain (STCG). For immovable property, a holding period of more than 24 months generally qualifies as long-term, while 24 months or less is short-term.

As a result, many inherited properties qualify as long-term assets, particularly where the original owner held the property for several years. This can work in favour of the inheritor because the original owner's holding period is generally carried forward.

What Changes When the Seller of an Inherited Property is an NRI?

This is where things get significantly different. When the person selling inherited property is an NRI, three things change.

No minimum threshold of Rs 50 lakh. TDS applies to every NRI property sale regardless of the sale value.

The TDS rate is much higher. Instead of 1 percent, the buyer must deduct TDS at the applicable capital gains rate. That is 12.5 percent for LTCG and 30 percent for STCG, plus surcharge and cess on top.

TDS is calculated on the full sale value; Section 195 technically applies to the income chargeable to tax comprised in the payment. However, where the taxable gain cannot be determined at the time of payment, the buyer may deduct TDS on the gross transaction value. This can result in a much larger deduction than the NRI's eventual tax liability. The NRI can then file an Income Tax Return (ITR) in India and claim a refund of any excess TDS.

HUF stands for Hindu Undivided Family.

The smarter approach for NRI sellers is to apply for a lower deduction certificate from the tax department before the sale. This allows the buyer to deduct TDS at a lower approved rate instead of the default high rate. It reduces the cash flow problem and avoids a long refund wait.

For NRI families dealing with inherited property in India, AasaanWill's blog on NRI and OCI Wills explains the broader estate planning picture and what documents NRIs need when managing or selling Indian property.

How the Seller Tracks TDS

The buyer deposits the TDS with the government. The seller can see this in their Form 26AS, which is a consolidated tax credit statement available on the income tax portal. It lists all TDS deducted on the taxpayer's behalf.

When the seller files their ITR, they claim credit for the TDS shown in Form 26AS. If the TDS deducted is more than the actual tax owed, the seller gets a refund.

Capital Gains Exemptions and TDS Are Not the Same

Sellers sometimes confuse TDS with capital gains tax. They are different.

TDS is what the buyer deducts at the point of sale and deposits with the government immediately.

Capital gains tax is the seller's tax on the profit from the sale, calculated when the ITR is filed.

The seller may qualify for capital gains exemptions by reinvesting in another property or in specified government bonds. These can reduce or remove the capital gains tax liability. But they do not affect TDS. The buyer still deducts TDS at the time of the transaction regardless of what exemptions the seller plans to claim later.

Mistakes That Cost People Money While Selling/Buying Inherited Property

These mistakes are easy to overlook, but they can lead to extra tax, penalties, or delays. Here’s what can go wrong and how each mistake affects the buyer or seller.

How AasaanWill Helps with Estate Planning of

When property passes through inheritance, the family needs two things above all: the right legal documents and a record of the original purchase details.

Without the original purchase price, date of purchase, and registration documents, the capital gains calculation becomes very difficult. The family may end up overpaying tax simply because no one kept the paperwork.

AasaanWill helps families plan ahead so this does not happen. Our team helps with:

• Writing a Will that records each property with its original purchase price, year of purchase, and registration details so heirs have everything they need when the time comes to sell

• Advising on which documents the original owner should keep alongside the Will so nothing is lost

• Helping heirs understand what legal documents they need before the property can be transferred or sold

• Guiding NRI families on the specific TDS rules and Lower Deduction Certificate process when inherited property is sold in India

AasaanWill's blog on estate planning challenges for NRIs with property in India explains the tax and documentation issues NRI families commonly face. And AasaanWill's blog on how to include foreign assets in estate planning covers how families with assets in multiple countries can structure their Wills to make inheritance and eventual sale as smooth as possible.

Conclusion

Selling inherited property in India comes with a clear TDS obligation. The buyer deducts 1 percent for a resident seller on sales above Rs 50 lakh. For NRI sellers, the rate is 12.5 or 30 percent with no minimum threshold, making a Lower Deduction Certificate important to apply for in advance.

The holding period and original cost always trace back to the original owner, which usually results in the sale qualifying as long-term capital gains with a lower tax rate. Keeping the original purchase documents makes this calculation clean and straightforward.

A Will that records property details clearly protects every heir at every stage. AasaanWill can help write that Will today.

Frequently Asked Questions

1. What is TDS on property sale?

TDS stands for Tax Deducted at Source. In a property sale, the buyer deducts a percentage of the sale amount and deposits it with the income tax department on the seller's behalf. The seller receives the remaining amount.

2. Does TDS apply to the sale of inherited property? 

Yes. Inheriting a property does not exempt the sale from TDS. The same rules apply as for any other property sale. TDS applies if the sale value is Rs 50 lakh or more. If the seller is an NRI, then the threshold of Rs 50 lakh does not apply.

3. Who deducts TDS in an inherited property sale? 

The buyer. The buyer deducts TDS before paying the seller and deposits it with the Income Tax department.

4. What is the TDS rate for a resident seller? 

1 percent of the sale value when the seller provides a valid PAN. If the seller does not provide a PAN, the rate is 20 percent.

5. Does the Rs 50 lakh threshold apply to the agreed price or the stamp duty value? 

Both. TDS applies if either the agreed price or the stamp duty value of the property is Rs 50 lakh or more, whichever is higher.

6. What forms are used to deposit TDS on a property sale?

For payments on or before 31 March 2026: Form 26QB to deposit and Form 16B as the certificate. For payments on or after 1 April 2026: Form 141 Schedule B to deposit and Form 132 as the certificate.

7. How is the cost calculated for inherited property? 

The cost is what the original owner paid when they first bought the property, not the market value at the time of inheritance.

8. Does the holding period start from the date of inheritance?

No. It starts from when the original owner first purchased the property. This means most inherited property qualifies as long-term capital gains.

9. What is the TDS rate when an NRI sells inherited property? 

12.5 percent for LTCG (Long-Term Capital Gains) and 30 percent for STCG (Short-Term Capital Gains), plus surcharge and cess. No minimum threshold applies.

10. What is a Lower Deduction Certificate? 

A certificate from the tax department that allows the buyer to deduct TDS at a lower approved rate. NRI sellers should apply for this before the sale to avoid excess deduction and a long refund process.

11. What is Form 26AS? 

Form 26AS is a consolidated tax credit statement on the income tax portal. It shows all TDS deducted on behalf of the taxpayer. The seller uses this to verify TDS credits and claims it when filing the ITR.

12. Does the buyer need a TAN for resident property sales? 

No. For resident-to-resident sales, the buyer's PAN is sufficient. TAN (Tax Deduction Account Number) is only required when the seller is an NRI.

13. Do capital gains exemptions reduce TDS? 

No. TDS is deducted at the time of sale. Capital gains exemptions are claimed by the seller in the ITR. The two are completely separate calculations.

14. What happens if the buyer misses deducting TDS? 

The buyer becomes liable for the amount not deducted. Interest is charged from the date the deduction should have been made, and penalties can apply.

15. Can AasaanWill help families with inherited property sales? 

Yes. AasaanWill helps write a Will that records property details, original purchase costs, and documents clearly so heirs have everything they need when the property is eventually sold.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. The information presented reflects the law as of the date of publication. For advice on your specific situation, please consult a qualified advocate.

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