Several individuals have inherited family property in India on death of their family members or otherwise. Often they assume that they do not have to pay tax on them simply as gift tax is not applicable. This is not the truth.
Individuals are liable to pay tax on inherited property, though not gift tax. When you own two properties, one of them would be deemed to have been rented out and income from house property would apply accordingly.
In case you do not rent it than you have to assume the fair rentals that would apply were the property to be let out and show them in your income tax returns.
So, the same case would apply for an inherited property. If you have two houses and one which is inherited the above norm would apply.
However, you are allowed to deduct for repairs and interest paid in case you have taken a loan.
Capital gains tax on sale of the inherited property
Sale of inherited property will attract a capital gains tax and you have to see whether long term or short term capital gains tax would apply. If you hold the inherited property for more than 3 years than long term capital gains would be applicable.
You can also add the number of years for which the previous owner held the property. Now long term capital gains tax would be applicable with indexation benefits. Read more on what is indexation
Now, what is interesting is that for the purpose of cost of purchase you would have to take into consideration the cost paid by your parents, grandparents etc.
So, if your father has paid Rs 5 lakh for the apartment in 1984 and you are selling it at Rs 1 crore, then tax would have to be paid on the Rs 95 lakh and of course taking into account indexation benefits that may arise. Read how to calculate capital gains with indexation
Now, there are various ways in which you can avoid paying capital gains tax. One is if you purchase another property or place or if you invest the money in capital gains bonds. Read more on how to avoid paying capital gain
It is important to remember that you have to pay capital gains tax on inherited property and if income from the inherited property arises by way of rentals, you have to show the same in your tax returns.