How legal heirs can transfer real estate of deceased
Property

How legal heirs can transfer real estate of deceased

Inheriting property after someone’s death has multiple processes, as all of them require a different fundamental setting. When a person dies, they may or may not leave behind a will. Due to this, there are two different processes that are carried out to ensure the inheritance and subsequently the transfer of the deceased person’s property. 

Deciding Heirs

When the deceased had already made a will

A will only becomes enforceable after the death of the testator, and unless there are any challenges to the will, the distribution of property is carried out in the manner laid down in the will. The will can also be either registered with the sub-registrar, even though that is not a necessity. The court will grant probate if there are no protests. A probate is will certified by court and is valid proof of the will.

When the deceased had not made a will 

The process is slightly more complicated when there is no will guiding the distribution of property after the person’s death. In that case, the heirs of the deceased can appoint amongst themselves one or more administrators who then obtain Letters of Administration to the estate of said deceased person. The distribution of the property then is on the basis of mutual settlement between the legal heirs, or in some situations, the court settles the distribution instead. Usually, the laws of succession come into effect in the case where there is no will made. Laws of Succession are different according to the religion followed by the deceased, so the personal laws differ in differentiating between legal heirs. Currently, non-Hindu religious groups adhere to their own particular regulations in this area. Hindu succession law entails Hindu Undivided Family (HUF) rules for the property. All legitimate heirs or coparceners of HUF holdings are given a right to the coparcenary property at birth. If the deceased passes away without a will for self-acquired property, coparcenary rules will apply to both ancestral and self-acquired property.

Documentation

Once the distribution of property between the beneficiaries is decided, there is documentation required to enable the transfer of the property of the deceased. An application to transfer property needs to be given at the sub-registrar’s office. Usually, the documents required are as follows: 

  • Death Certificate

  • Will 

  • Will with probate/succession certificate

  • Ownership documents of the assets

  • If there is absence of will: 

  • Affidavit

  • No-objection certificate from other legal heirs/successors

  • Declaration of any consideration paid to claim another heir’s share of the property

Mutation

After the property gets transferred, mutation of the property title is required. Getting the property in your name in all official records after an inheritance is known as mutation. You won't be able to use the property for any loan mortgage, rent agreement, or sale without a change of title ownership recorded in official records, such as those kept by municipal corporations. It is a process carried out to transfer the title of an immovable property from one person to the other in the land revenue records, as for the payment of property taxes. This is also required as it adds to the evidentiary value of a person owning a property. The documents required for mutation of property differs according to the state, but the main document required are those proving the ownership and transfer of property. When it is ancestral property without the required resources, one needs to trace the title of the property, and claim evidence of whether or not the deceased person had paid any compensation to acquire the said property. The process of mutation is carried out in the local municipality office.

Rights and Liabilities

Upon inheriting a property, the successor inevitably assumes any existing encumbrances, mortgages, disputes, and the like. Furthermore, any transfer of a mortgaged property necessitates written consent from the lender. Hence, in the event of the demise of a property owner with an outstanding mortgage, the successor - who could be the spouse or children of the deceased - inherits the responsibility for settling the remaining loan. Conversely, if the deceased had procured a home loan insurance, the insurer would be obliged to settle the unpaid loan with the lender. In such a scenario, the successor would need to secure a loan clearance certificate from the lender, alongside the original property documents previously submitted for the loan, subsequent to the insurer's payment.

Calculate Capital Gains on Sale of Inherited Property
Property

Calculate Capital Gains on Sale of Inherited Property

In India, the sale of immovable property is taxable in the year of sale. Any immovable property held for more than 24 months is considered a long-term capital asset. In the event of inherited property, the holding period is determined from the date of acquisition by the original owner (deceased person). The taxation on the sale of inherited property differs from the taxation on the sale of purchased property. Estate Tax (also known as Inheritance Tax) is charged on inherited assets. According to section 56(ii) of the Income Tax Act, there is no inheritance tax regardless of the value of the inherited property. However, if the successor decides to sell the inherited property, the capital gains are taxed. 

Price of Property

The price of the property will also be based on the expenses incurred by the original owner. If the property was purchased by the original owner before to April 1, 2001, the cost may be substituted with the property's current fair market value, as long as it does not exceed the stamp duty value on that day. The original owner's or taxpayer's cost of improvement, or capital expenditure, incurred for installing additions or improvements to the property after 1 April 2001 can also be used into the calculation of capital gains in this scenario. The indexation cost of acquisition is computed with the Cost Inflation Index (CII). The years 2000 and 2001 are utilised as the basis year for determining CII. All real estate purchases made before to 2000–2001 are regarded as having a CII of 100. Every year, just before the start of the fiscal year, the government updates and releases the CII. The CII is essential for determining the inflation-adjusted rise in the cost of the property and is used to determine the tax on the sale of inherited property. 

Also Read:  Stamp duty and registration charges are mandatory: Buyers should take utmost care on this front

In 2023, Capital Gains Tax on Sale of Inherited Property

Capital Gains Tax on the property is calculated based on the length of time the initial owner and subsequent inheritor possessed the property. It will be considered how long the initial purchaser and inheritor kept the property. As a result, even if an inheritor only received the estate last year but the original buyer purchased the property five years prior, the inheritor will still be required to pay LTCG tax when selling the inherited property. As a result, the following types of taxes may be imposed: 

  1. Short Term Capital Gains Tax: If a property is held for less than 3 years, STCG is calculated as per the marginal income tax slab of the inheritor and can be up to 30%.

  2. Long Term Capital Gains Tax: If a property is held for more than 3 years, then LTCG of a fixed 20% is applicable. One can get an exemption on LTCG on two grounds: 

  1. One has the option to spend the LTCG within three years of the sale date on new property building or within two years of the selling date on new property acquisition.

  2. The alternative choice is to purchase bonds from the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC). These bonds, commonly referred to as capital gain bonds, were made particularly to assist individuals in obtaining LTCG tax exemption.

If the LTCG is not invested by the time the India tax return is due (on July 31), there is a choice to deposit the capital gain in a Capital Gains Account Scheme (not later than the India tax return due date) and then withdraw the money to reinvest in a new residential property within the allotted time (2 years or 3 years, depending on the situation). The remaining amount of the LTCG will be subject to tax if it is not fully reinvested or put into the scheme.

Also read: Can Homebuyers take Legal action against builder for delay in possession of Property?

Steps to Calculate Capital Gains: 

To calculate capital gains, one needs to be aware of the cost of acquisition and indexation, then the cost of the property in itself. To calculate the capital gain, the cost at which the previous owner (not the inheritor) got the property is considered the acquisition cost. On the basis of the data updated till 2001, the price is decided.  

Hence, sale of inherited property requires tax considerations and should be structured effectively.

Also Try:  consult a property lawyer