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Tax-on-Inherited-Property

 

Tax on Inherited Property

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See the related post : How to E-file Income Tax Return

Inherited Property-

Inherited property is that property which is passes titles, debts, rights, and obligations to another person upon the death of an individual or by way of will. Or say property received by son from his father under a will or by inheritance is called inherited property.

 

Taxability on Income arises from Inherited property-

If any Income arises from inherited property will be taxed in the hands of receiver-

For example-

Mr. X received rental income from inherited property of a Rs. 50,000 per month, it will be taxable in the hands of Mr. X, under the head of “Income from House Property

 

Taxability on sale of Inherited property-

When a property is received on inheritance or as a gift, it is not taxable for the receiver. When the inheritor or the receiver of this gift of property, sells it, capital gains on the sale are taxable for the inheritor.

The cost of the property for receiver will be considered as the cost of previous owner-

For Example-

Mr. X has purchased the property in 2013 at a price of Rs. 15,00,000, the said property inherited to his son, after the death of his father, the cost of Rs. 15,00,000 will be considered for Mr. X at the time of sale of property.

Capital gain will be calculated on inherited property, is as sale of another property.

Short-term Capital Gains Tax-

In the case of short-term capital gains-

Short-term capital gain= full value consideration – (cost of acquisition + cost of improvement + cost of transfer).


Long-term Capital Gains Tax-

In the case of long-term capital gains-

Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition* + indexed cost of improvement** + cost of transfer), where:

*Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

**Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.

 

Tax Exemptions on Capital Gains-

However, tax on long term capital gain can be saved, through exemptions u/s 54-

  1. Exemption u/s 54: Long term Capital Gain on Transfer of Residential House Property- Section 54 gives relief to a taxpayer for long term assets, if he sells his residential house and from the sale proceeds he acquires another residential house. The assessee has to invest the full amount of capital gains, not the entire sale proceeds, to claim the full exemption otherwise it will be allowed proportionately to the extent of amount invested.
  2. Exemption u/s 54F: Long term Capital assets other than residential house- Section 54F gives relief to a taxpayer for long term assets, if he sells assets (other than residential house) and from the sale proceeds he acquires another residential house property. If the assessee has invested the amount of entire sale proceeds, can claim the full exemption otherwise it will be allowed proportionately to the extent of amount invested.
  3. Exemption u/s 54EC: Long term Capital Gain on Sale/Transfer of Land or Building or both- Section 54EC gives relief to a taxpayer for long term assets i.e. land/building, if he sells the said assets, the capital gain arise on sale of land/building, can invest into long term bonds, maximum up to Rs. 50.00 lakhs, having lock in period of 5 years w.e.f 01.04.2018, within 6 months from the date of transfer/sale of assets.

We can invest the long-term capital gain amount, in the bonds which are issued by the following entities-

  1. National Highway Authority of India (NHAI)
  2. Indian Railway Finance Corporation Limited (IRFC)
  3. Power Finance Corporation Limited (PFC)
 

Capital Gains Account scheme-

If the asset is sold in the Previous Year, and the seller intends to, but is yet to purchase the new house property as the time limit of 2 years or 3 years has not yet expired, then the assessee is required to deposit the amount of gains in the Capital gains account scheme (in any branch of public sector, bank) before the due date for filing income tax returns.

The amount already incurred towards purchase/construction along with the amount deposited in the capital gains account scheme can be claimed as cost while claiming the deduction.

However, if the amount deposited in the Capital Gains Account Scheme is not utilized within the time limit mentioned, then it shall be treated as income of the previous year in which 3 years expire (from the date of transfer of the original asset).




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