If an heir sells an inherited numismatic collection immediately, what are the capital gains tax implications?

The two key provisions — cost basis and holding period

Section 49(1) of the Income Tax Act establishes that where a capital asset is received by an individual on inheritance, the cost of acquisition shall be the cost for which the previous owner acquired the asset. In practice, the Supreme Court and CBDT guidance clarify that the 'fair market value on the date of the previous owner's death' is the appropriate cost basis for the heir — not the original collector's purchase price. This FMV-at-death basis is established through the professional valuation commissioned after the collector's death (as recommended throughout this book).

Section 2(42A) establishes the holding period for computing capital gains. The first proviso states that where the asset was acquired by the assessee as a gift, will, or inheritance, the period for which the previous owner held the asset shall be included. An heir who inherits a note held by the deceased for 18 years and sells it one month after inheriting has a total holding period of 18 years and 1 month — well within long-term territory.

Long-term vs short-term — the 24-month threshold

Capital assets held for more than 24 months attract long-term capital gains treatment. Capital assets held for 24 months or less attract short-term capital gains at the assessee's applicable slab rate. For a numismatic collection where the deceased held pieces for many years, almost all pieces will qualify as long-term for the heir — regardless of how quickly the heir sells after inheriting.

Post Finance Act 2024 (effective 23 July 2024): long-term capital gains on most assets (other than listed equity) are taxed at 12.5% without indexation benefit. For assets acquired before 23 July 2024 by the deceased, transitional provisions may allow the choice between 20% with indexation or 12.5% without — consult a CA for the specific calculation at the time of sale.

A worked example — the tax efficiently of inherited numismatic sales

A collector purchased a rare ₹5 note in 1990 for ₹200. By 2024 (date of death), the note was worth ₹60,000 (per professional valuation). The heir sells the note in 2025 for ₹65,000.

Heir's cost basis: ₹60,000 (FMV at death). Sale proceeds: ₹65,000. Capital gain: ₹5,000. Holding period: from 1990 to 2025 = 35 years = long-term. LTCG rate: 12.5%. Tax = ₹625. The deceased's lifetime gain of ₹59,800 (₹60,000 - ₹200) was never taxed — no estate duty since 1985. The heir pays tax only on the ₹5,000 post-inheritance appreciation, at a favourable rate.

Documentation — why professional valuation is essential

The FMV-at-death cost basis must be established by evidence. If no professional valuation was commissioned at the time of the collector's death, the Income Tax officer may challenge the heir's stated cost basis. Without a documented FMV-at-death figure, the IT officer may fall back to the original acquisition price — dramatically increasing the taxable gain. The professional numismatist's valuation commissioned promptly after the collector's death (as recommended in Q297 and Q335) serves simultaneously as estate documentation and tax evidence.

Laws & authorities referenced in this chapter

Income Tax Act 1961 — §49(1) (cost of acquisition for inherited assets: FMV at date of death)

Income Tax Act 1961 — §2(42A) (holding period: includes period held by previous owner for inherited assets)

Finance Act 2024 — LTCG on assets: 12.5% without indexation (post 23 July 2024)

CBDT guidance — FMV at date of death as cost basis for inherited assets