In India, at present tax is not levied on inherited property unless you sell it. You would be eligible to pay tax on gains earned by you on the sale.
For determining capital gains tax one needs to look at expenditure incurred by the previous owner to acquire the property. Also, any expenditure that is incurred by you to sell the property. Tax is not applicable on entire amount, it is levied only on the capital gains from the transaction.
However, one can avail indexation benefit if the property is acquired is three years back, which is calculated based on the cost inflation index. Click here to know How to calculate long term capital gains with indexation?
Long term capital gains reduces tax liability tremendously if one takes indexation into consideration.
Under section 54/54F, if you purchase new house property from the entire sale amount, then no capital gain tax would be applicable.(to avail this captain gains exemption, needs to purchase the new residential house within a period of one year before or two years after transfer of the original house or in case of the construction of home needs to be completed within three years from the date of transfer of the original house).
If the amount of capital gain exceeds cost of the new house property, then one needs to pay the difference between the amount of capital gain and the cost of the new house property.
Under 54E EC of the Income Tax Act, if the amount is invested in bonds, called as capital gains bonds there is no capital gains tax. Person who wish to invest in such bonds should invest within six months from date of sale or filing returns whichever is earlier. The a limit is restricted Rs 50 lakh in a single financial year.
In India, whether you are a resident Indian or a NRI, you need not pay Inheritance Tax. But, there are other taxes that you might end-up paying. Click here to know What steps should NRIs take to sell their inherited property in India?.