Income tax on inherited income: Is money from inherited income taxable in India?

Income tax on inherited income

Income tax on inherited income: You could be worried about whether money from Inheritance of assets or property is taxable in India. Your inherited assets may include real estate or other portable assets like gold, mutual funds, certificates of deposit, etc. as well as immovable property like land, property, etc. There are a number of provisions in India on the tax liabilities of any inherited asset. Everything you need to know about inheritance taxes is available right here.

What is Inheritance tax?

The income that a person obtains from the property of their ancestors is subject to a type of tax known as the tax on inheritance. In the event of death, a deceased person’s property would be transferred to their legal heirs, who could be children, grandchildren, or wards.

The property is frequently used as the new owner’s income source, providing rent, interest, etc. Once the heir assumes ownership, the revenue becomes theirs. As a result, the new owner must disclose this income and make the requisite tax payments.

Read Also: Income Tax: How to save capital gain on sale of house property

Implications of Income tax on inheritance

However, the Income Tax Act, 1961, specifically excludes Property belonging to a deceased person would pass to his legal heirs in the case of his death. Without a doubt, this event represents a transfer of something for nothing. As a result, it can be regarded as a gift for income tax purposes. the transfer of assets under will or inheritance from the purview of gift tax. Accordingly, the law does not provide for taxation of property received by way of inheritance.

Read Also: Gift – Tax Liability – Income Tax on Gift in India

Income Tax on inheritance income

Many times, the inherited property serves as the owner’s source of income in the form of rent, interest, etc. The income is given to the heir when he becomes the owner. As a result, the new owner is required to report this income and pay taxes.

Read Also: ITR: Can your income gets added to another person’s income?

Income Tax on sale of inherited Property

You become the owner of a property after you inherit it, and you are then free to decide whether to sell it. In this manner, as the legal heir, you will also benefit from any capital gain or loss.

Furthermore, whether or not capital gains are subject to long-term capital gains tax or short-term capital gains tax depends on the holding period (the time frame during which you and the deceased possessed the property).

Read Also: Income Tax Rules on Capital Gains – Types, Tax rates, computation, exemption

Other Relevant Points on Income Tax on inherited Income

  1. In case the asset is received by more than 1 individual, the tax would be levied in the hands of each person in equal proportions. For eg: If in the above mentioned example, there were 3 sons, the rent and capital gains will get divided into 3 parts and the tax on rental income and capital gains tax will also get divided into 3 parts.
  2. If the son Mr. B does not sell the property but rather gifts the same to his son Mr. C, tax in such a case would not be levied. In other words, the property purchased by Mr. A is now being owned by Mr. C. In such a case as well, the same above mentioned provisions will apply i.e. the rental income would be taxed in the hands of Mr. C and no tax would arise on transfer from Mr. B to Mr. C. Capital Gains Tax would only be levied on the sale of property from Mr. C to some outsider.
  3. Inheritance Tax was earlier applicable in India from 1953 to 1985. There were rumours that the Govt intends to reintroduce Inheritance Tax in India but the same have been dismissed by all Govt sources. It is highly unlikely that Inheritance Tax would be reintroduced in India.
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