Tax on Inheritance in India
The property of a person is passed to the next generation, relatives, or friends after the death of the owner of the property. Inheriting property is legal, and the heir needs to pay tax for inheriting the property from the owner in various countries. In India, the law of tax on inheritance was abolished in the year of 1985. The inherited property in India is excluded from the horizon of gift tax. So, if you inherit property under a will, then you need not pay any inheritance tax in India to the government.
But if you use the inherited property as the source of income, you need to pay tax for the income as per the rule of income tax in India.
What is Inheritance Tax?
If you inherit a property, you become the legal owner of the property. The person who inherits the property needs to pay the tax, and it is known as the inheritance tax on property of the deceased one. The rules of inheritance are applicable in different countries, but it was abolished in India in 1985.
As per the inheritance tax, income tax implications on property tax after death are calculated depending on the will of the property created by the deceased and the relationship of the deceased one and the heir. The inherited tax is decided based on the portion inherited by the heir after the death of the property owner.
Tax on income from inheritance
When a person inherits the property, he or she becomes the legal present owner of the property and can use the property for earning money. The inherited property, which is used as a source of income, comes under the regulation of the income tax payment.
Tax on subsequent sale
Subsequent sale is selling a property to another person during the period of transit by the original buyer. The tax on the subsequent sale is applicable in India when the seller gets more than 50 lakhs from the buyer against the property. TDS is applicable to the entire amount that the seller receives. If the seller sells the property at 80 lakhs, then the TDS will be applicable to the entire amount, not only 30 lakhs.
Income tax on the amount received to the nominee
If the amount credited by the nominee is more than 50,000, then it comes under Income tax on the amount received to the nominee. But if the amount is received in the gift deed, then the same is not taxable in this country.
Inheritance Tax in India & other Taxes on Ancestral Property
Ancestral property is considered to be the assets or property which is inherited from the father, grandfather, or great grandfather. All types of inherited properties are not considered Ancestral properties. Property taxes after the death of a parent is not applicable in India if the property is not used for earning money.
The Ancestral Property has no taxation in India as the inherent tax is not applicable in this country today. But when the property is sold and gained money from it, then the value earned from the property is taxable. The amount of taxation depends on the period of holding the property from the date of acquisition. If the period is more than 24 months, then it is considered as Long-term Capital Gains. The less period holding of the property is known as the short-term capital gains. The taxation rate in the case of long-term capital gain is 20.8%, and the short-term capital gain is considered as per the slab rates applicable on it.
Tax on income arising out of Inherited Assets
Suppose the property which is inherited is used to earn money like rent or used for commercial purposes. In that case, the annual income from the inherited property is taxable to the government. If the inherited property is sold out, then also the value of the property comes under the income tax rules of the country. The amount of taxation depends on the portion which is inherited by a person and earned from it. If the inherited property is not used for rent or any earning source, it doesn’t come under any taxation as per the present taxation rules.
Capital Gains on Sale of Inherited Assets
The property which is inherited from the relatives is counted as a gift, and it is not taxable. But when the property is sold by the person who has inherited it, then the value earned from the property comes under the taxable rule. The amount of taxation depends on the period of holding the property from the date of acquisition. The property which is held for more than 24 months comes under the long-term capital gains, and if the period is less, then it is called short-term capital gains. The rate for the property under long-term capital gains is 20.8% of the valuation of the property, and in the case of short-term capital gain, it is counted as per the slab of earning from it.
Other Relevant Points of Inherited Assets
Inheritance of property means transferring the ownership of a property from one to another legally after death. The legal heirs are decided legally to transfer the ownership of the property of the deceased person. There are various laws and regulations in Indian law to decide the inheritance of assets.
The laws of inheritance are determined depending on the circumstances of the particular case. The laws like Indian Succession Act, 1925, Hindu Succession Act, 1956, Shariat Law are connected to succession.
According to the Hindu Succession Act of 1956, the sons and daughters both have equal rights on the property inheritance. Sikhs, Jains, and Buddhists are also included in the Hindu Succession Acts. The exemption in the property inheritance is applicable for the Hindu married ones to the non-Hindu according to the special marriage act. This act not only identifies the heirs of the property legally but also determines the quantum and how the property is divided among the heirs.
In the case of Muslims, the legal property share is fixed for each member depending on the relationship and the members left in the family of the deceased.
How to change the name in property tax after death?
Proper documentation is essential for changing the name of the owner of a property. You need to submit the documents, including the death certificate, Succession certificate copy, an affidavit on the legal stamp paper, up-to-date paper of the tax clearance of the property, application for mutation of the property with the necessary stamp affixed, registration deeds, and more.
You can take the help of the lawyers to complete the transfer of the property legally after the death of the owner. The tax payable on the person’s property after his death is known as estate duty in India, and there is no amount that needs to be paid as the estate duty tax is abolished in this country presently.
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Frequently Asked Questions (FAQ’s)
Does inherited property get taxed?
In the present day, there is no applicable tax on the inherited property in India until the owner sells off the property or uses it as an earning source. If the property is used for making money, then the income from the property comes under the rule of income tax.
What taxes have to be paid when someone dies?
The property after death is inherited by the legal heirs of a person, and there is no inheritance tax applicable on the property as per the present rule in India. But when the property is sold by the heir or used as the earning source, then it comes under the income tax rules.
Is the sale of my deceased parents home taxable?
Yes, if you sale of your Ancestral Property, then you need to pay tax on the price of the property in your deal. The application of the taxation depends on the period of holding the property from the acquisition date. The income tax rate in short-term capital gains is divided into various slabs. The rate for the long-term capital gain is 20.8%.
How do I reduce estate tax after death?
There are few ways that you can follow to get exemption in the tax on the property or assets that you use for earning. The taxable amount for earning from an inherited property can be reduced by following the alternative date of valuation of the property as a way to reduce the estate tax in India.
The inherited property can be given to the trust and make it tax-free. Generally, the collaboration with the trust is done till the death of the grantor. This can help you to get an exemption in estate tax after inheriting a property
A part of the property or assets can be given to the others apart from the legal heirs to reduce the taxable amount of the assets. You can also give some amount of money to your legal heir while living so that you can leave less assets after death. And this can save the taxable payment after your death.
What happens to his property if the owner dies without leaving a will?
If a person dies without making a will and distributing his or her assets to the legal heir after death, then the property is distributed among the legal heirs as per the regional community law. The legal heir in income tax also depends on the use of the property and the earning amount from the property, and the valuation of the particular part of the asset. To get the legal ownership of the property, the legal heirs need to decide to divide the property in themselves, and every legal heir has to be agreed to that partition. This documentation should be produced in the court, and accordingly, the ownership of the property is divided among the heirs.
Can I give away all my property by way of will?
Yes, a property can be transferred by way of a will. The legal heir should have no objection to this transfer of the property if they are excluded from the will and the part of the property.
The will can be registered or unregistered. The registered will is always safe, and the custody can be given under a bank or a lawyer. The transfer of the property is transferring the ownership of the property to another hand. The property can be transferred in the form of a gift or sale. The proper documentation is very important to prove the ownership of the property when the ownership of the property is transferred to another person legally.
