Everything You Need To Know About Inherited Property Taxation

Although it is usual in India to inherit property, it is important to understand the Income Tax regulations for such assets in order to be ready for the upcoming financial obligations. Regarding the taxes that apply to inherited property, there is a great deal of misunderstanding in India. It is a prevalent misperception that inherit property is exempt from income tax and that capital gains tax does not apply when an inherit property is sold. The owner of an inherit property is actually subject to annual taxation under the heading “Income from House Property.” Additionally, the proceeds from the sale of inherit property are consider Long Term Capital Gains (LTCG), which are subject to a 20% tax.

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Inheritance-related property taxes

In India, the Inheritance or Estate Tax was repeal in 1986. And there is currently no tax obligation at the time of inheritance. An owner of inherited property must, nevertheless. Pay the yearly tax for “Income from House Property.” The foundation on which the tax is compute is either the annual value of the property as determine by the rent receive, or a fair rent that the property is anticipate to earn. The annual worth of a self-occupied property is zero, whereas the annual value of a let-out property is the annual rent collect.


Taxation on the sale of an inherited asset

When inherit property is sold, the owner is responsible for paying the tax.

Any asset acquired as an inheritance is completely exempt from gift tax. But the proceeds from its sale are not exempt and are subject to capital gains tax. Depending on how long an asset was held, capital gains could be either long- or short-term. The inherited property is regard as a long-term capital gain if it has been possess for two years or more. The time the previous owner owned the home will also be include to the holding period when determining the holding period of the inherited home. As a result, an inherited property is typically already subject to the LTCG tax.

According to the provision, the cost of acquisition may be replace with the fair market value of the property. If it was inherit before April 1, 1981. After April 1, 2001, Rs. 50,000 will be consider the cost of acquisition if the property is inherit. The high courts of Mumbai, Delhi, and Gujarat maintain that the taxpayer will only be ineligible to replace the sum paid by any of the prior owners in the case of an inherit property if the asset is bought after April 1, 1981. In this situation, the taxpayer will be eligible to benefit from indexation as of the year the prior owner acquired the property.


Whether inherited or not, the tax on the sale of property might be significant. By doing some of the things listed below, one can reduce capital gains tax while selling a property:

  • Purchasing bonds from the Indian Railways Finance Corporation Limited (IRFC), Rural Electrification Corporation Ltd (REC), Power Finance Corporation Ltd (PFC), and National Highway Authority of India (NHAI) within six months of selling inherited property. The maximum acceptable investment is Rs 50 lakh per financial year in order to avoid capital gains tax.
  • Build a new home within three years. Or buy a new home before the sale or within two years following the sale of the inherited home. The seller is permit to buy up to two residential properties. And a maximum of Rs 2 crore in LTCG can be exempt.
  • The proceeds from the sale of a property may be place in a “Capital Gains Account” at any authorize bank. With the exception of some of the rural branches, in accordance with the Capital Gains Account Scheme, 1988. Additionally, make sure the deposit money is use within two years. If not, the deposit amount will be consider a short-term capital gain as of the day the two-year period is up.

Tax obligations are not exempt from inherited property. While you will be liable for the annual income taxes generate by the property. There will also be some tax expenses associate with its sale.



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