In such cases,as you have inherited the house from your mother and she in turn has inherited the house from your father,the cost to the father will be treated as the cost of the house for the purpose of computing long term capital gain.If the house bacame the property of your father before 01.04.1981,you have the option to put the fair value of the house on 01.04.1981 as the cost of the house and multiply the same with the cost inflation index of the current year divided by the cost inflation index for 1981.This will give the cost of acquisition.Sale proceeds less cost of acquisition will be the capital gain.Any cost incurred on improvement of the house later will also be similarly indexed and added to the cost of the house.This capital gain will be taxed at the flat rate of 20 %.It will be taxed in the hands of the person who is the registered owner of the hosue,or in the hands of HUF,if any formed,consisting of the brothers and sisters or if all are co-owners,in the hands of each co-owner on his/her share.You can save this tax by investing the capital gain in another house within specified period as per Sec 54 or invest the proceeds in specified bonds as per Sec 54EC,your capital gain will be exempt.
