Answer By law4u team
In India, inheritance involves the transfer of assets from a deceased person to their legal heirs. While India does not currently have an inheritance tax, there are still various tax implications related to inherited property, such as capital gains tax, stamp duty, and other legal considerations. Understanding these tax implications is crucial for heirs to manage their inheritance properly.
Tax Implications of Inheritance in India:
No Inheritance Tax:
India does not impose an inheritance tax. This means that heirs are not directly taxed on the value of the inherited property or assets they receive. The estate of the deceased is not taxed for its value upon transfer to heirs.
Capital Gains Tax on Sale of Inherited Property:
While there is no inheritance tax, if the inherited property (such as real estate, stocks, etc.) is sold by the heirs, capital gains tax may apply.
Long-Term Capital Gains (LTCG):
If the inherited property is sold after holding it for more than 24 months (for real estate) or 36 months (for securities), it is subject to long-term capital gains tax. The tax rate for LTCG on real estate is 20% with indexation benefits, and on stocks, it is 10% (if the gains exceed ₹1 lakh per year).
Short-Term Capital Gains (STCG):
If the inherited property is sold within the specified holding period, short-term capital gains tax will apply, which is higher, at 15% for equity assets or as per the applicable tax rate for real estate.
Cost of Acquisition for Inherited Property:
For calculating capital gains on the sale of inherited property, the cost of acquisition is considered to be the value of the property as on the date of the deceased’s death. This means that the property’s market value on the date of inheritance is considered as the purchase price, which may help in reducing the taxable gains if the property is sold later.
Stamp Duty:
While inheritance itself is not subject to tax, stamp duty may apply on the transfer of property rights in the case of immovable property. The rate of stamp duty varies by state, and it must be paid for the legal transfer of property ownership to the heir’s name. Some states in India may offer exemptions on stamp duty in cases of inheritance, especially if the property is being transferred to direct legal heirs.
Gift Tax:
Although inheritance is not subject to tax, if the deceased person made gifts to the heir during their lifetime, gift tax may apply. If an individual receives gifts above ₹50,000 in a year, it may be considered taxable under the Income Tax Act, but this tax typically applies to gifts given during the lifetime of the giver, not on inheritance.
Wealth Tax:
While wealth tax was abolished in India in 2015, certain high-value assets inherited from a deceased person may still attract other taxes such as capital gains tax or may require reporting under other tax rules.
Reliefs and Exemptions:
Agricultural Land:
In some cases, agricultural land is exempt from capital gains tax if it meets specific criteria related to its use and location.
Relief under Section 54:
If the inherited property is a house and the heir decides to sell it and purchase another residential property, they may be eligible for certain exemptions under Section 54 of the Income Tax Act, reducing the capital gains tax liability.
Legal Heirs and Succession:
The legal heirs of the deceased must follow the succession laws in India, which can vary depending on whether the deceased was Hindu, Muslim, Christian, or from another community. These laws determine the rightful heirs and the share of inheritance, which can also impact the eventual tax treatment and transfer of assets.
Example:
Suppose a son inherits a residential property worth ₹1 crore from his deceased father. The property has been held for over 10 years. If the son decides to sell the property after inheriting it, he will be liable to pay long-term capital gains tax. However, the cost of acquisition will be based on the market value of the property as of the father’s date of death, which could help lower the taxable capital gains. Additionally, stamp duty may be payable if the property is transferred into the son's name under state laws.
