Sale of property

IMHO there will be regular LTCG applicable from sale of property.

There are 5 rules for Gifted property or inherited property.

Rule 1: Date of acquisition by donor is the date of gift receiver/Inheritor

Rule 2: Cost of acquisition of donor (your uncle's grand father) is the cost of acquisition for donne ( gift recipient ) /Inheritor

Rule 3:-  Indexation from the date of acquisition by the donor(ur uncles's Grand father) shall be taken. 

Rule 4 : Adopt market value as cost if the asset was acquired before 01/04/1981
It has been provided in clause (i) of section 55(2)of the I T Act that in case the capital asset was acquired before 01/04/1981 , the market value as on 01/054/1981 can be adopted as cost of acquisition .

Rule 5 : Claim exemption u/s 54 or 54F or 54EC as the case may be 

Each of the 17 heirs must have got a flat. They can buy another house and claim exemption u/s  54 or  invest the gains part  in LTCG bonds and claim exemption u/s 54EC . Under 54EC only 50lks can be exempted - rest of it will taxed.

You should approach a good CA/Tax Consultant/lawyer cum Tax consultant in ur area and take his help for filing tax returns so that the tax burden is the least.  

Agreed with Shiroor. Income from sale of flats is definitely taxable. You will need to plan his estate with the help of a CA and a lawyer. 

If all properties are in his name alone, then he may have think of some big investment to have the LTCG as tax free. Your relevant sections would be 54, 54EC(limited scope).