When Does Capital Gains Tax Apply On An Inherited Property?
An inherited property is not subjected to tax at the time of inheritance, but it is taxable during sale under the Indian Succession Act 1925.
An inherited property is not subjected to tax at the time of inheritance, but it is taxable during sale under the Indian Succession Act 1925.
Capital Gains Tax On Ancestral Property
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Property can be passed to legal heirs by will or through a gift deed. Property received through inheritance is not subject to tax at the time of inheritance but will attract capital gains tax during sale. Matters related to property inheritance in India are governed by personal laws, such as the Indian Succession Act 1925 and the Hindu Succession Act 1956. These laws allow property transfer to legal heirs, such as spouses, children, parents, grandchildren, etc., after death.
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Assets received as inheritance, either in cash or as physical property, are exempt from taxation under section 56(2) (x) of the Income-tax Act, 1961. Inheritance tax is a type of tax applied to the inheritor if the property is sold in the future. As per taxation rules, the seller of such a property will have to pay a capital gains tax when selling the inherited asset. Furthermore, if the inheritor of such a property earns an income from it in interest or rent, the returns will be taxed annually as per the individual income slabs. The new owner must, therefore, report and pay taxes on income from such a property when filing their annual income tax returns.
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The owner of an inherited property is liable for capital gains tax upon selling the property. Gift tax is exempt for an inherited property, but subsequent sales are taxable under capital gains, which can be long- or short-term, depending on the asset’s holding period. A long-term capital gains (LTCG) tax will apply when the inherited property is sold after two or more years. Short-term capital gains tax will apply when held less than 24 months from the date of acquisition. Also, LTCG is subject to indexation benefits, while STCG is taxed as per income slabs.
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