No, inheritance itself is not taxed in India. When a person inherits property, wealth, or any other assets from a deceased individual, it is not subject to inheritance tax ( which is also known as estate duty ). India abolished estate duty in 1985. However, taxes may apply when the property or assets are later sold or transferred.
When you sell inherited property, the gains from the sale may be subject to capital gains tax. The capital gains are calculated based on the cost of acquisition, which is essentially the original cost at which the deceased acquired the property. The holding period of the property is considered from when the original owner acquired the property.
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Capital gains tax depends on whether the asset is classified as a short-term or long-term capital asset:
Short-term capital gains ( STCG ): If the inherited property is sold within two years from the date of inheritance, it is considered short-term, and the gains are added to your income and taxed according to the applicable income tax slab.
Long-term capital gains ( LTCG ):.If the property is held for more than two years, the gains are classified as long-term and taxed at 20% with indexation benefits. Indexation allows you to adjust the cost of the property for inflation, thus reducing the taxable gains.
There is no direct tax on inheriting movable assets such as jewelry, cash, shares, or bonds. However, similar to immovable property, taxes are applicable when these assets are sold or transferred:
For shares and mutual funds: Long-term capital gains ( for holding periods exceeding 12 months ) are taxed at 10% without indexation if the gains exceed ₹1 lakh.
Become an Expert in Tax Regulations: Sections 269 and Beyond
For jewelry and other movable assets: Long-term capital gains tax applies at 20% with indexation, similar to inherited immovable property.
Wealth tax in India was abolished in 2015, so inherited assets are no longer subject to any form of wealth tax.
Under the Income Tax Act 1961 ( ITA ), if a person receives a gift of immovable property or other assets from a non-relative( someone who is not a close family member as defined by the Act ), the value of the gift is taxable under the head of “Income from Other Sources”, provided the total value exceeds ₹50,000.
Relatives exempt from this rule include parents, siblings, spouse, and children, among others, as defined under ITA.
Gifts received from non-relatives, if valued over ₹50,000, will be taxed as per the applicable income tax slab of the recipient.
Become an Expert in Tax Regulations: Sections 269 and Beyond
While inheriting assets does not directly create a tax liability, any income generated from the inherited assets, such as rental income from inherited property or interest/dividends from inherited shares, must be included in your income tax return. Additionally, if you sell the inherited assets, the capital gains must be reported in your return.
The sale of inherited property and the resultant capital gains should be reported under Schedule CG ( Capital Gains ) of your income tax return ( ITR )
The details required include sale price, indexed cost of acquisition, indexed cost of improvement ( if any ), capital gains or losses, exemptions claimed under sections like 54 or 54EC of the tax statute ( if applicable ).Ensure that all the required documentation, such as the sale deed and proof of indexation is maintained for future reference.
Become an Expert in Tax Regulations: Sections 269 and Beyond
Yes, rental income from inherited property is taxable under “Income from House Property” in the hands of the person who inherits it. The tax is calculated after allowing a standard deduction of 30% of the rental income for repairs and maintenance, and after deducting any interest paid on a loan taken to acquire or improve the property ( if applicable ).
Yes, you can gift inherited property to anyone. However, under the Indian tax legislature the recipient may have to pay tax if the property’s stamp duty value exceeds ₹50,000, unless the recipient is a relative as defined by the statute. No tax is levied on the person gifting the property.
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