Short answer: if your Indian property was acquired before 1 April 2001, you can use its fair market value (FMV) as on 1 April 2001 as your cost of acquisition instead of the original (often tiny) price — which lowers your taxable gain when you sell. The value is capped at the 2001 stamp-duty value, and a registered valuer’s report is the accepted way to establish it.

Why this matters

Capital gain is sale price minus your cost of acquisition. For old or ancestral property, the original cost is often minuscule (or undocumented) — so almost the entire sale price becomes taxable gain. The law fixes this: under Section 55(2)(b), for any asset acquired before 1 April 2001 you may substitute the FMV as on 1 April 2001 for that original cost. A far higher cost base means a far smaller gain.

For a property a parent bought for ₹40,000 in the 1980s and you sell for ₹1.6 crore, using an FMV-2001 of, say, ₹9 lakh instead of ₹40,000 removes ₹8.6 lakh of taxable gain at a stroke.

The stamp-duty cap

There’s a limit, added by the Finance Act 2020: the FMV you substitute cannot exceed the stamp-duty (circle / guideline) value of the property as on 1 April 2001. So a valuation has to be grounded in the contemporaneous stamp-duty value for that locality — not an aggressive estimate. A proper registered valuer’s report pulls both the comparable market data and the 2001 stamp-duty value, and applies the cap.

Inherited property

Where you received the property by inheritance, gift or succession, your cost base rolls back to the previous owner (Section 49(1)), and the holding period includes theirs — so an inherited property is almost always long-term. If the previous owner acquired it before 1 April 2001, the FMV-2001 substitution is available on their acquisition. Improvements made after 1 April 2001 are added on top; pre-2001 improvements are treated as subsumed into the 2001 value.

Does it help NRIs?

It can, but with a nuance. Since 23 July 2024, NRIs pay a flat 12.5% without indexation on property gains. So for an NRI, the FMV-2001 is used as a flat cost base — it still cuts the gain where the original cost was low or undocumented, but it isn’t indexed upward. Resident individuals and HUFs who opt for the 20%-with-indexation route get the bigger benefit, because they also index the FMV-2001 from 2001 to the year of sale. Either way, the valuation is what makes the number defensible. Check your figures on the capital-gains & TDS calculator.

US persons, note: if you inherited the property, your US cost basis is a different figure — the FMV at the date of death (the “step-up”), which you also need for Form 3520. That’s a separate valuation date; see our property valuation service.

How to establish the FMV-2001

  1. Engage a registered valuer. They physically assess the property and pull comparable sales and circle-rate data for the neighbourhood as of 1 April 2001.
  2. Apply the stamp-duty cap. The report evidences the 2001 stamp-duty value and caps the FMV to it.
  3. Get a signed report. With methodology, comparables and the final figure — keep it in your return-filing pack and produce it if the assessment is scrutinised.

How NRI360 helps

Our property valuation service is led by a registered valuer, so your FMV-2001 report stands up to the tax department — and we plug the number straight into your return or lower-TDS application so it actually reduces what you pay.

General information, current as of FY 2025-26, not individual tax advice — confirmed in your free review.