INHERITANCE TAX AND TAX ON INHERITED PROPERTY

There is no current law in India that imposes a tax on inherited property. This means you do not have to pay tax for inheriting the asset, but you do need to pay taxes on any income you make off of the inherited asset, e.g., rent, interest, etc.

WHEN WAS IT INTRODUCED IN INDIA

The Inheritance tax was introduced in India in 1953 with the motive that it would help reduce the economic disparity in India but was later repealed in 1985 as it was observed that it didn’t fulfil its motive.

But although there isn’t a tax on inherited property, this doesn’t mean that it ceases tax completely on inherited property. It is clear that inheriting property or assets doesn’t incur a tax itself. However, any income generated from these inherited assets may be subject to taxation for your legal heirs.

To understand this matter, let us first understand what inheritance tax is.

An inheritance tax, as its name implies, is a tax imposed on the assets inherited from a deceased individual. In simpler terms, it means that when someone inherits assets from a deceased person, they are required to pay a tax on those inherited assets. To learn further about this law, read: https://legally-speaking.in/national/inheritance-tax-a-quick-overview/

WHEN DOES AN INHERITED PROPERTY BECOME TAXABLE

This means that if this law were still applicable in India, then if any person inherited a property, he or she would be liable to pay the inheritance tax.

As mentioned, no tax is imposed on inherited assets or property, whether they are movable or immovable. Nevertheless, any profit resulting from the sale of a capital asset is categorized as a capital gain.

Inherited property is not classified as a capital gain because when a person inherits a property, he gets the property through inheritance and not sale; in that case, there is a mere transfer of ownership. However, if the inheritor of the property decided to sell the inherited asset, capital gains tax would apply. There has been a transaction that has resulted in capital gains, therefore there would be a tax levied on the inherited property.

In conclusion, in India, there is currently no tax on inherited property itself. However, any income derived from inherited assets, such as rental income or interest, may be subject to taxation. Additionally, while there is no specific inheritance tax law in place, capital gains tax may apply if the inherited property is sold, as the profit from the sale is considered taxable. Therefore, while inheritance itself is not taxed, the income generated from inherited assets and any profits from their sale may be subject to taxation in accordance with existing laws.

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