What is Inheritance Tax? Types of Inheritance in India – Complete Information

What is Inheritance Tax?

Inheritance Tax is the tax an individual has to pay on the income they received from Inheritance. Income includes property, assets, vehicles, and money.

In several countries, when a person dies, their children, siblings, or spouse may inherit their property or assets. The heirs may have to pay an inheritance tax. The tax rate can be as high as 55%, depending on the country.

Inheritance Tax in India

There is no current law that imposes a tax on inherited properties in India. An individual does not have to pay tax for inheriting the asset. However, they must pay tax on any income they make from the inherited asset, such as rent or interest.

For example, if you inherit a house, you will not need to pay inheritance tax on it. Yet, if you rent it out or sell it, you will need to pay applicable taxes. If you sell it then capital gains tax will be applicable. Your ownership period will determine whether the capital gains are long-term or short-term. Taxes will be calculated accordingly.

There is no inheritance tax in India. Taxes are only levied on any net income or profit from inherited property or assets.

Inheritance of Immovable Property

Immovable assets usually refer to real estate or other property. This includes land, a building, and shops. 

The owner can save on the capital gains tax. They can exempt themselves from this tax using Section 54 of the Income Tax Act of 1961. They must invest the sale proceeds in another property of equal or greater value.

Before filing income tax, the person will consider the remaining balance as capital gains. This happens if the purchased property or investment is of lesser value.

Inheritance of Movable Assets

Movable assets usually refer to mutual funds, gold, shares, bank accounts, or even a life insurance policy. The taxes on the sale of these assets depend on what they are. Different laws apply based on the asset’s nature.

For example, in the case of a life insurance policy, you will need to apply for a death benefit claim with certain documents. The claim amount will be tax-exempt, as all death benefits are under Section 10(10D). 

The policyholder would have been eligible for tax benefits under Section 80C. You do not have to pay any taxes on the amount received.

Inheritance Tax in India: Types of Inheritance

Will of Succession

The deceased individual has pre-declared the lawful owner of their assets. This is an old and traditional way of inheritance and will be presented as a document. 

The deceased individual (testator) makes, writes, or signs the ‘Will’. An ‘Executor’, a legal representative of the deceased, carries out the terms.

Inheritance by Nomination

The property or asset is inherited by a nominee. A nominee is a person declared by the deceased individual to become the lawful owner of an asset. The nominee is also declared to become the lawful owner of the benefit it generates. They do not have to be related to the deceased.

Under Indian law, the nominee will receive and maintain the property or asset. They are legally bound to distribute the assets among the legal heirs of the deceased.

Inheritance by Joint Ownership

If any asset or property lies under the joint ownership of two or more people, the surviving person(s) gets to manage the deceased’s asset(s). The inheritance can be jointly owned by being: 

Tenants in Common

When two or more people buy a property or asset but do not mention each one’s share. If one of them dies, their share of the property will pass to their legal heir and not to the other co-owner(s).

Joint Tenancy

The property is owned by two or more persons in equal shares. They own it at the same time, under the same deed, and with equal interests. When one joint tenant dies, their share passes on to the surviving joint tenant(s).

Tenancy by Entirety

This form of ownership is between spouses. Neither can sell off the property without the other spouse’s consent. This joint ownership can only be terminated through divorce, death, or mutual agreement between the spouses.

Conclusion 

There is no inheritance tax in India, so if you inherit property or assets, you will not be required to pay any taxes on it. However, if you choose to sell the asset or gain any income or profit from the inherited property, you must start declaring the inheritance on your tax returns.

To get to know more about tax-free incomes in India, Read The top 11 tax-free incomes in India.