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What Is Inheritance Tax In India?: Tax Implications On Inheritance Tax

There is no current law that imposes a tax on inherited property in India. 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. 

It is natural to want your loved ones to inherit your assets and property upon death. 
 

In countries like India, while there is no tax for simply inheriting the property or asset, your legal heirs may need to pay tax on any income they gain from the inherited asset.
 

This means two things: There is no actual inheritance tax in India, and taxes are only levied if you gain any type of net income or profit arising from the inherited property or asset. 
 

To make this easier to understand, we have detailed the potential tax implications of your inherited property and how you can ensure legal compliance while still securing your loved ones' futures. 

What is Inheritance Tax in India?

Inheritance tax is a percentage amount of tax that a person must pay for inheriting a property or asset. Depending on the country, the inheritance tax rate can be as high as 55%.
 

In many countries, when the property or assets of a deceased individual get passed on to their legal heirs - children, siblings, spouse, etc. after death, an inheritance tax must be paid for inheriting the property or asset from the deceased relative. 
 

Currently, India does not have to impose any tax on the inheritance of a property or asset to legal heirs, nominees, or beneficiaries. However, tax laws in India do apply to any income gained from inherited assets or property.   
 

For example, if you inherit a house, you will not need to pay inheritance tax on it, but you will need to pay applicable taxes if you decide to rent out the house or sell it.

Declaring Inheritance on Tax Return: Will I be Taxed If I Sell my Inherited Property?

 

 

As stated, no tax is levied on inherited assets or property, regardless of whether it is movable or immovable. However, any profit from a capital asset's sale is a capital gain.
 

Inherited property is not considered a capital gain since there is no sale and only a transfer of ownership, but if you inherited the asset and decide to sell it, capital gains tax will be applicable since any property, once inherited, can always be sold.
 

Moreover, your holding period (the period of ownership) will decide whether the capital gains are long-term capital gains or short-term capital gains, and taxes will be calculated accordingly.
 

Here are some ways you can save on taxes if you decide to sell your movable or immovable assets. 
 

  • Tax on Inheritance of Immovable Property

    Immovable assets usually refer to real estate or other property like land, a building, shops, etc. 
     

    To save on the capital gains tax, Section 54 of the Income Tax Act of 1961 states the new owner can be exempted from this tax if they invest the sale proceeds in another property of equal or more value. 
     

    If the newly purchased property or investment is of lesser value, then the remaining balance must be deposited in a capital gains account scheme before filing income tax.

  • Tax on Inheritance of Movable Assets

    Movable assets refer to mutual funds, gold, shares, bank accounts, or even a life insurance policy. The taxes levied on the sale of any of these assets will depend on what these assets are, as different laws will be applicable depending on the nature of the asset. 
     

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

    The policyholder, on the other hand, 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 'Will' will be made/written or signed by the deceased individual (testator), but the enactment of the terms will be executed by an 'Executor', a legal representative of the deceased.

  • 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 and 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 until 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 - 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 where neither can sell off the property without the other spouse's consent. This joint ownership can only be ended 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.
 

Hence, knowing the conditions stated above in the blog will help you and your loved ones navigate applicable tax laws and make the best possible decision to grow the inherited asset.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions (FAQs)

Is inherited life insurance taxable?

Any proceeds inherited from a life insurance policy due to the policyholder's death are fully tax-exempt. This means the nominee gets to claim the full sum assured amount.

Can I avoid inheritance tax in India?

Since there is no inheritance tax in India as of now, you are not required to pay taxes if you inherit any asset or property from a deceased relative.

Can NRIs inherit property in India?

NRIs can inherit property in India under the Foreign Exchange Management Act (FEMA). They will not be levied any tax on inheritance.

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.