Tax on Inheritance – It is obvious that a person’s property and assets (such as ancestor’s ones) will be carried on by their children, grandchildren, or wards – after he/she passes away. In certain nations, the heir will have to pay the Inheritance Tax to inherit any assets or properties by your parents and grandparents or any other parent or acquaintance.
In India, furthermore, the idea of imposing inheritance tax doesn’t really apply in present. In fact, with impact from 1985, the Inheritance or Estate Tax was discontinued.
In the case of the death of a person, the property belonging to the dead person will be transferred to his legal heirs. There really is no denying that this incident is a transmission of an account without even any evaluation in exchange. It could therefore meet the criteria as a gift for income tax purposes. Nevertheless, provisions of the Income Tax Act, 1961, specifically exempt from the scope of gift tax a transfer under a will or inheritance. Consequently, the law may not offer for the taxation of property obtained by the manner of inheritance.
When is Tax on Inheritance applied?
Many times, the ancestral asset seems to be the owner’s source of revenue, rent, interest, etc. The money goes to him as the successor becomes the proprietor. So, this profit must be reported by the new owner and pay taxes accordingly.
Just as an example. Mr. Ram is the owner of a complex which is provided for sale. He had accrued a price of Rs. 50 lakhs for the development of the building. He receives a monthly profit of Rs.60000 from the property as a lease. On his demise, the house is passed from Ram to his legal heir (son) Shyam. Here, because the transfer is inherent in the essence of the exchange by will, it could not be treated as taxable.
When you acquire an inherited property, you are becoming the owner and you may prefer to sell it afterward. That way, the financial gain or loss too would accrue to you as the legal heir.
In addition, the holding duration (the duration of your possession and the possession of the dearly departed) will decide whether investment income will be subject to tax on long-term capital gains or short-term capital gains tax.
Just ex. Ex. Mr. A, upon his death during the year 2017, acquired the assets by his father. Mr. A’s father bought the property for Rs.20,000 on February 2, 1997. The property was sold on October 2, 2018, for Rs.3,00,000.
Because the asset was already owned for a duration of more than 2 years (holding period involves the holding period of the parent too), the capital gain would be considered as long term. Likewise, the legal heir will avail itself of indexation advantages when assessing the capital gains.