Fair Market Value as on 1 April 2001, Explained

This one rule saves Indian families more tax than almost anything else in the tax code, and most people have never heard of it. Here it is, explained properly.

The rule in one paragraph

If you are selling a property that was bought before 1 April 2001, you do not have to use the old purchase price as your cost. You are allowed to use what the property was worth on 1 April 2001 instead. Since 2001 prices were far higher than prices in the seventies, eighties or nineties, this makes your cost much bigger, your profit much smaller, and your tax much lower.

Why the government allows this

Imagine your father bought a flat in 1980 for fifty thousand rupees. You sell it today for eighty lakh.

On paper that looks like a profit of nearly eighty lakh. But most of that is not profit at all. It is forty five years of inflation. Fifty thousand rupees in 1980 bought a great deal more than fifty thousand rupees buys today.

Taxing you on the full amount would mean taxing you on inflation. The law recognises that, and gives you two protections. You can substitute the 2001 value, and you can adjust that value for inflation.

A worked example

Father buys a Delhi flat in 1985 for eighty thousand rupees. Children sell it today for one crore.

Without the 2001 rule. Cost is eighty thousand. Almost the entire crore is treated as gain.

With the 2001 rule. A valuer establishes that the flat was worth twelve lakh on 1 April 2001. That twelve lakh becomes the cost.

Then inflation adjustment applies. The index for 2001 is 100, and for 2026-27 it is 384. So twelve lakh becomes twelve lakh multiplied by 384 divided by 100.

The gain falls enormously, and so does the tax. Put your own numbers in and see.

Who this applies to

• Anyone selling property bought before 1 April 2001
• Anyone selling inherited property where the original owner bought before that date, even if you inherited recently

That second point catches people out constantly. If your grandfather bought land in 1970 and you inherited it in 2019, the rule still applies to you. You step into his shoes for tax purposes. More on inherited property.

Why you cannot just pick a number

People sometimes assume they can write down a generous figure and move on. You cannot, and it is a genuinely dangerous idea.

The figure has to be supported by evidence. If a tax officer looks at your report and finds nothing behind the number, they can reject it and refer the matter for a fresh valuation. You then lose the benefit entirely, and there may be a penalty on top.

What real evidence looks like

• The notified rates for your colony in 2001. Every area had an official rate at that time, and those records exist.
• Actual sales from around that period. What similar properties in the same area genuinely changed hands for.
• The property itself. Its size, its construction, its position, all recorded on an inspection.
• Adjustments, stated openly. A corner plot is worth more. A poorly built structure is worth less. These are set out so anyone can follow them.

What about the new tax law?

India moved to a new Income Tax Act on 1 April 2026, replacing the one from 1961. The principle described here has not changed. The section numbers have. If you are reading older articles online, they may cite sections that no longer exist. We explain the change here.

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