Jun 26, 2023Investments

Have You Inherited a Property? Know the Tax Implications

by Godrej Properties Limited



You might be concerned about the tax burden on the assets you have inherited. Your inherited assets may comprise real estate, immovable property, or movable assets like gold, mutual funds, etc. In India, there are many restrictions on the tax responsibility of any inherited asset. You can get all the information on inheritance tax right here.

Concept of Ancestral Property

Ancestral property refers to property passed down through generations within a family. It typically includes property inherited from ancestors or acquired through partition, succession, or wills. Ancestral property holds special significance under Indian law, especially concerning inheritance and taxation.

What is Inheritance Tax?

Inheritance Tax is assessed on the income that a person receives from his or her ancestors' property.

Property belonging to a deceased person would be passed on to his lawful heirs, who could be children, grandchildren, or wards, in the event of death.

Many times, the inherited property serves as the new owner's source of income in the form of rent, interest, etc. The income belongs to the heir once they take ownership. As a result, the new owner is required to report this income and pay taxes as necessary.

Taxation of Ancestral Property under the Hindu Succession Act

Under the Hindu Succession Act, ancestral property is governed by specific rules regarding inheritance and taxation. The Act defines ancestral property as property inherited by a Hindu from his father, father's father, or father's father's father, with each successive generation inheriting an undivided share in the property.

Methods of Inheritance Tax on Property

In India, there is no specific inheritance tax levied at the national level. However, certain methods of taxation apply to inherited property, such as capital gains tax, stamp duty, and registration fees. These taxes are imposed on the transfer of property ownership from the deceased to the heirs.

Taxation on Inherited Assets

Inherited assets, including both immovable property (land, buildings) and movable assets (jewellery, stocks), are subject to taxation based on their nature and value. Capital gains tax on inherited property is applicable when it is sold or transferred, with the tax rate varying depending on the duration of ownership and the type of asset.

Tax on Inheritance of Immovable Property

Inherited immovable property is subject to capital gains tax upon sale or transfer. The tax is calculated based on the difference between the sale proceeds and the indexed cost of acquisition or fair market value as of April 1, 2001, whichever is higher.

Tax on Inheritance of Movable Assets

Inherited movable assets, such as jewellery, stocks, and vehicles, are also subject to taxation. Capital gains tax applies when these assets are sold or transferred, with the tax rate varying based on the duration of ownership and the type of asset.

Understanding the tax implications of inherited property is essential for beneficiaries to fulfil their tax obligations and plan their finances effectively. Consulting with tax experts or legal advisors can provide valuable insights into navigating the complexities of inheritance tax laws and minimizing tax liabilities on inherited assets.

What you should know in case of:

Inheritance of Immovable Property

Remember to pay taxes on the long-term capital gains from the sold property when selling the inherited property. The new owner is responsible for paying taxes on the proceeds of the asset's sale if it is kept for a period of time beyond three years from the date of acquisition.

The new owner will be required to pay Wealth Tax if the value of the inherited property exceeds INR 30 Lakh. However, if that person doesn't have any other property, they will not be eligible to pay the wealth tax.

Inheritance of Movable Assets

If you inherit a bank account, you must rename it to Account Holder Deceased. The pipeline flow to make withdrawals from the account will be attributed to you if you are the survivor, nominee, or legal heir.

If a vehicle is inherited, the new owner must register it in his or her name by submitting an application to the state RTO.

The Final Word

Knowing these requirements will enable you to recognise the proper ownership of an asset and determine the best course of action, while the right advice will enable you to benefit from the tax advantages.


Frequently Asked Questions:

1. How would taxation be done in the case of inherited shares?

Ans: Depending on how the shares were inherited, the dematerialised versions of inherited shares are automatically transmitted to the joint account holder, nominee, or legal heir. Only the income tax due on your returns is your responsibility.

2. When can the nominee make a claim?

Ans: After the insured's passing, the life insurance policy comes to an end. The nominee must submit a claim application along with specific supporting documentation in this instance.

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