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When a property is received on inheritance or as a gift, it is not taxable for the receiver. When the inheritor or the receiver of this gift of property, sells it, capital gains on the sale are taxable for the inheritor.The capital gains shall be calculated in same manner as here, the cost of acquisition and indexation shall be done as follows.
Cost of the property – The property did not cost anything to the inheritor, but for calculation of capital gain the cost to the previous owner is considered as the cost of acquisition of the Property.
Indexation of cost – Additionally, the year of acquisition of the previous owner is considered for the purpose of indexation of the cost of acquisition.
For example – Mr Arora purchased a property on 1st August 2004 for Rs 75lakhs. Neha inherited this property from her father in 2012, however she decides to sell this house. In May 2014, Neha sold this house for Rs 1.8 crores. In this case, cost for calculating Neha’s gain shall be Rs 75lakhs and the cost shall be indexed since it’s a long term capital gain. For the purpose of indexation, the CII for 2004-05 shall be considered. Therefore cost for calculating capital gains for Neha shall be Rs 75lakhs x CII of 2014-15/CII of 2004-05 = 75lakhs x 1024/480 = Rs 1.6Crores. Therefore net gain for Neha is Rs 20lakhs. Do note that the date or year of inheritance are of no importance in this calculation.You can read about how to save capital gains tax here

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