Shares inherited from parents: How will capital gains tax be calculated on sale?

According to fresh market updates, An individual inherited physical shares that her father bought in the 1980s, later transferred them to her demat account, and sold them in 2026. Today’s Ask Wallet Wise explains how to determine the cost of acquisition for inherited listed shares, and whether the shares qualify for indexation.

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My father passed away in 2017, leaving behind physical share certificates of blue-chip firms purchased in the 1980s. It took me three years to get the succession certificate and dematerialise (demat) these shares in my name, completing the process in 2021. I sold these shares in June 2026. How do I calculate the cost of acquisition? From when can I index the cost, and does the 2018 grandfathering clause apply to me even though the shares were not in my name on January 31, 2018?

Expert's Advice: For any inherited capital asset, the taxpayer may use the original owner's cost as their cost basis. If it was acquired before April 1, 2001, the fair market value as on April 1, 2001 can be taken as the cost for computing long-term capital upside. That stated, if the inherited capital assets are listed shares or units of equity-oriented schemes, the grandfathering provisions provide for a later date of 31st January, 2018, provided the original owners acquired them before February 1, 2018.

In respect of listed shares, the closing price on the stock exchange on that date may be taken as the cost of the shares inherited, provided the shares were acquired by the original owner prior to 1st February 2018. For units of equity-oriented schemes, the closing NAV (Net Asset Value) of such units shall be taken as the cost of the bequeathed listed shares and units of equity-oriented schemes.

The grandfathering provisions will apply even if the same were inherited after this trimmed-off date. The date on which the shares or units of equity-oriented schemes are ultimately transferred is not relevant, provided it can be established that they were acquired by the original owner before February 1, 2018. Since your father passed away in 2017, it is clear that all the shares were acquired before January 31, 2018; as a result, you can use the closing price on that date as your cost.

Please note that the benefit of indexation is not available in respect of these capital assets, and you have to pay tax at a flat rate of 12.50 percent beyond Rs. 1.25 lakh of long-term capital upside in respect of all listed shares and all units of equity-oriented schemes taken together, which get taxed at zero rate and thus come tax-free in your hands.

The transmission of shares via inheritance is not considered a "transfer" under the Income Tax Act, meaning no capital upside tax was applicable when you inherited them in 2018.

When you sell inherited assets, the previous owner's (your father's) holding period is further noted to yours. Since your father acquired them in the 1980s, these are Long-Term Capital Assets.