The tax angle to inherited land, building

While you would be happy to receive inheritance from any family member, the tax impact of of inherited immovable property (IP) has to be assessed carefully. Under the current tax law, where a person receives any IP—land or building or both—the value of which exceeds Rs 50,000 without adequate consideration, the same is taxable in the hands of the recipient. However, where such IP is received as a gift from specified relatives or under a will or inheritance or in contemplation of donor's death, the recipient of the IP is not taxable.

Similarly, an exception is also provided for capital gains taxation to the donor for transfer of IP under a gift or a will. Post inheritance, the IP becomes similar to any IP that the individual may own. Accordingly, if the recipient owns more than one IP (including inherited IP) and the same is not actually rented; one of the IPs can be chosen as self-occupied property which is not liable to tax. The individual will have to pay income tax on the deemed rental income for the other IPs (even if inherited).

Additionally, the recipient may also be liable to pay wealth tax on the specified value of the other IPs (even inherited) as per the current wealth-tax rules.

Subsequently, if the inherited IP is sold, the recipient would be subject to capital gains tax. The capital gains will be the difference between the sales consideration and cost of acquisition (including cost of improvements). Transfer costs (eg brokerage etc) borne by the seller are allowed as a deduction. In case of inherited IPs, the cost of acquisition is regarded as the cost of previous owner ie the donor. If the donor also had acquired the IP by way of inheritance or gift the cost of acquisition will be the cost for the last previous owner who had acquired the IP otherwise than as gift or inheritance. In either case, if such acquisition by the last previous owner is before April 1, 1981, the cost of acquisition can be regarded as the Fair Market Value of the property as on April 1, 1981.

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