Inheritance Tax

We all inherit moveable and immoveable property from our ancestors. Have you ever paid any tax on your inherited property? India does not have the concept of tax on inheritance. There are several ways in which we inherit ancestral property. While we pay taxes when we transfer this inherited property or even gift it, we do not pay tax when we inherit the same. Let us examine a few modes of succession and the tax on inheritance in India.

Will of Succession

In order to prevent dispute and chaos among potential heirs, many people decide to have a will announcing the division of their property. A will of succession may be recorded on a plain paper and may be registered later on. A registered will of succession has greater evidentiary value. A will of succession, clearly divides the property and minimizes disputes among successors.

Inheritance by Nomination

A nominee is a person who holds the assets of the deceased till he is legally required to distribute the same to the legal heirs. ‘Nomination’ is a right of the owner of an asset through which he/she can appoint person/persons, known as the nominee, who will be entitled to receive the asset upon the death of the original owner. Under Indian law, the nominee will rightfully receive and maintain the property of the deceased until the nominee is legally bound to distribute the assets among the legal heirs of the deceased.

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Inheritance by Joint-Ownership

Inheritance can be jointly owned by being:

1. Tenants in common, when two or more persons purchase a property but do not necessarily mention each one’s share; they have a ‘tenancy in-common’. All co-owners are said to have the same share in the property, and if one of the co-owners dies, his share of the property does not pass on to the other co-owner but to the deceased legal heir.
2. Joint tenancy, When the property is owned by two or more persons at the same time in equal shares, it is a joint tenancy. However, when one joint tenant dies, his share automatically passes on to the surviving joint tenant(s) with the condition that all the co-owners should have taken possession of the property at the same time in the same deed and with equal interests.
3. Tenancy by entirety, this is a form of joint ownership between husband and wife, neither of the spouse can sell off the property without the consent of the other spouse. This joint-ownership can only be ended via divorce, death, or mutual agreement between the spouses.

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Taxation on Inherited Assets

Inherited assets such as land, houses or even moveable property such as jewellery are not taxable in the hands of the inheritor. If you inherit a house, you will not be paying inheritance tax on it. However, if you decide to sell the said house or transfer it in any manner, the incidence to pay tax gets triggered.

Inherited assets are not taxable by the virtue of the inheritance. They are only taxable when their holder seeks to transfer them in whatsoever manner.

Taxation on immovable property

While selling off inherited property, the inheritor pays taxes on the long term capital gains from the property in question. If the asset is held for more than three years from the date of acquisition, then the new owner is subject to tax liability after he/she receives the money from the sale of the asset.

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Taxation on movable assets

Usually, no tax is levied on movable assets unless the nominee, legal heir, or the joint owners decide to sell the asset/s, then these owners are liable to pay taxes on these movable assets, in accordance with applicable laws.

Inheritance tax is a concept that has been done away with in India. However, one needs to be sure that while they will not pay any tax while inheriting, they will be liable to pay tax when transferring such inherited property.