The Legal Implications Of The Difference Between Ancestral Property And Inherited Property In India

Indian property laws can be confusing for many people, especially when it comes to ancestral and inherited property. This blog will help you understand the differences between these two types of property, their legal and tax implications, and how you can protect your rights as a property owner. 

Whether you're looking to sell or inherit property, this blog is a must-read for you. In the following paragraphs, you will learn about the meaning of ancestral and inherited property, their differences, and how to avoid common tax mistakes. Don't miss out on this valuable information!

What is Ancestral Property?

The meaning of ancestral property is defined as any property that has been passed down from generation to generation through inheritance. In India, ancestral property refers to property that has been passed down from father to son for at least four generations.

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Time Limit To Claim Ancestral Property

Under Hindu law, there is no time limit to claim ancestral property. However, if any of the successors decide to sell the property, all successors must agree to the sale.

Can Ancestral Property Be Sold Without Consent Of Successors?

No, ancestral property cannot be sold without the consent of all successors. In the event that some of the successors disagree with the sale, they have the right to file a suit in court to stop the sale from taking place.

Ancestral Property Under Hindu Law

Under Hindu Law, all successors have an equal right to ancestral property and any sale or transfer of the property must have the consent of all successors. If any disputes arise, they can be resolved through mediation or by filing a suit in court.

Can I Sell Undivided Ancestral Property?

Yes, you can sell undivided ancestral property in India, but it requires the consent of all the legal heirs who have a stake in the property. The sale of ancestral property is governed by the laws of inheritance, which vary from state to state. However, as a general rule, all legal heirs must agree to the sale of the property before it can be transferred to a buyer. 

It is important to note that the sale of undivided ancestral property may also have tax implications, and it is advisable to seek the advice of a tax professional to ensure compliance with the applicable laws and regulations.

What is Inherited Property?

Inherited Property Meaning

Inherited property is defined as any property that is received by an individual as a result of the death of a family member. The property can be transferred to the individual either through a will or through inheritance laws.

Cost of Acquisition in case of Inherited Property

In the case of inherited property, the cost of acquisition is determined by the market value of the property at the time of the death of the family member. This value will be used to calculate any capital gains tax that may be owed on the sale of the property.

Who Has The Right To Inherit Property In India?

In India, the right to inherit property is governed by the Indian Succession Act, of 1925. This act defines the individuals who have the right to inherit property and how the property will be distributed among them.

Difference Between Ancestral Property and Inherited Property

What Are The Legal Implications Of Owning Ancestral Property Or Inherited Property?

The legal implications of owning ancestral property are different from those of owning inherited property. For example, all successors must agree to the sale of ancestral property, while the inherited property can be sold by the individual who inherited it.

Tax Implications

The tax implications of owning ancestral property and inherited property also differ. Inherited property is subject to capital gains tax, while the ancestral property is exempt from this tax.

Differences In Transfer Of Ownership 

In India, the transfer of ownership of ancestral and inherited properties is governed by the provisions of the Indian Succession Act and the Hindu Succession Act.

An ancestral property refers to a property that has been passed down from one generation to another within a family. In the case of ancestral property, the ownership rights are vested with all the members of the coparcenary, and any transfer of ownership must have the consent of all coparceners.

Inherited property, on the other hand, refers to property that has been acquired by an individual through inheritance from a deceased person. In the case of inherited property, the ownership rights vest with the inheritor, and he/she can transfer the property to any person of their choice.

In terms of transfer of ownership, ancestral property can only be transferred through partition or by will. Partition of ancestral property is a complicated process, and the consent of all coparceners is mandatory. In the case of transfer through will, the transfer can only take place after the death of the testator, and the will must comply with the formalities as prescribed by law.

Inherited property, on the other hand, can be transferred at any time and without any restrictions. The inheritor can sell, gift or bequeath the property as per his/her wish.

Differences In Partition Of Property

As the ancestral property is owned jointly by a group of people, any decision related to its sale or partition must be made collectively by all the co-owners. The Hindu Succession Act and other applicable laws outline the legal requirements for partitioning ancestral property. The process involves a legal notice to all co-owners and a court hearing in case of disputes.

The partition process may also involve paying tax on the transfer of ownership. This is because the partition of ancestral property is considered a transfer of ownership and may attract capital gains tax.

Can Ancestral Property Be Sold Or Partitioned?

Legal Requirements For Partitioning Ancestral Property

Ancestral property can be sold or partitioned among the heirs of the ancestral property, subject to the laws of inheritance and succession applicable in the jurisdiction where the property is located. The partition of ancestral property typically requires the consent of all co-owners and may be done by mutual agreement or through a court-ordered partition.

Tax Implications Of Selling Ancestral Property

The sale of the ancestral property can have significant tax implications, both for the seller and the buyer. From a seller's perspective, the sale of ancestral property is considered a long-term capital gain, which is subject to income tax. 

The tax rate on long-term capital gains is 20% plus the applicable surcharge and cess. Additionally, if the property has been held for more than two years, the seller is eligible for indexation benefits, which helps to reduce the tax liability.

From a buyer's perspective, the stamp duty and registration charges for the transfer of ancestral property are higher compared to the transfer of self-acquired property. The stamp duty and registration charges vary from state to state and can range from 4-12% of the property's value. Additionally, the buyer may be required to pay property tax to the local municipality, which is calculated based on the property's annual rental value.

It is essential to keep in mind that the sale of ancestral property is subject to inheritance laws, which vary from state to state. In some cases, the sale of ancestral property may require the consent of all the legal heirs.

Can Inherited Property Be Willed?

Inherited property can be willed by the inheritor, subject to the laws of inheritance and succession and any other testamentary formalities required in the jurisdiction where the property is located. A will is a legal document that specifies how the property will be distributed after the death of the person making the will. However, the validity of the will may be challenged by the legal heirs, and the final disposition of the property will depend on the outcome of any legal proceedings.

Capital Gains Tax on Inherited Rental Property

Capital gains tax on inherited rental properties in India refers to the tax levied on the profits made from the sale of a property that was inherited by an individual. The tax is calculated based on the difference between the cost of acquiring the property and the sale price of the property. 

The cost of acquisition includes the cost of purchasing or acquiring the property, as well as the cost of any improvements made to the property. In the case of an inherited property, the cost of acquisition is taken as the fair market value of the property at the time of inheritance. The capital gains tax on inherited rental properties in India is payable by the person selling the property, and the tax rate varies depending on the holding period of the property. 

It is advisable to seek professional advice to understand the tax implications and to ensure compliance with Indian tax laws.

Calculate Capital Gains Tax on Inherited Rental Property

Inheriting rental property comes with its own set of tax implications. The capital gains tax on an inherited rental property is calculated based on the cost of acquisition and the current market value. The cost of acquisition to calculate capital gains tax is the cost incurred by the previous owner to acquire the property.

How To Claim Tax Exemptions For Inherited Rental Property?

Tax exemptions are available for inherited rental property under certain conditions. For example, if the property has been held for more than two years, the individual may be eligible for long-term capital gains tax exemptions.

Tax on Selling Inherited Property in India

In India, the sale of inherited property is subject to tax implications and the amount of tax you may have to pay depends on various factors such as the type of property, its value, the duration of ownership, etc.

If the property was inherited within 2 years of its purchase, then the entire sale proceeds would be considered short-term capital gains and taxed as per the income tax slab applicable to the seller. If the property was inherited more than 2 years before its sale, then the sale proceeds would be considered long-term capital gains and taxed at 20% after accounting for indexation benefits.

Additionally, stamp duty and registration charges would also be applicable on the transfer of property ownership. The stamp duty and registration charges are state-specific and vary from state to state.

It is important to note that if the property was inherited from a relative, then no gift tax would be applicable. However, if the property was received as a gift from a non-relative, then gift tax may be applicable as per the provisions of the Gift Tax Act.

Therefore, when selling an inherited property in India, it is important to be aware of the various tax implications that may arise and to plan accordingly to minimize the tax liability. It is advisable to seek professional advice from a tax consultant to ensure compliance with the tax laws and to optimize the tax benefits available.

Calculate Tax on Inherited Property Sale with Ease

When an individual decides to sell an inherited property, they must pay tax on the sale proceeds. The tax is calculated based on the difference between the cost of acquisition and the sale price. The cost of acquisition is usually the same as the cost incurred by the previous owner to acquire the property.

How To Claim Tax Exemptions For Inherited Rental Property?

Tax exemptions are available for the sale of inherited property under certain conditions. For example, if the property has been held for more than two years, the individual may be eligible for long-term capital gains tax exemptions.

Common tax mistakes can be avoided with the help of a knowledgeable legal expert. For example, failing to transfer the property in one's name after an inheritance or not considering the indexation benefit while calculating capital gains tax can lead to costly mistakes.

Inherited property and ancestral property are two different concepts in Indian property law. Inherited property refers to property that is passed down from one generation to another through a will or by law. Ancestral property refers to property that has been passed down for several generations and is jointly owned by a group of people. Both types of property have different legal and tax implications. 

With the help of a knowledgeable legal expert, individuals can easily calculate tax on inherited property sales, claim tax exemptions and avoid common tax mistakes. NoBroker's experienced legal team provides personalized guidance on property laws to help individuals navigate the complexities of the Indian property market. Contact NoBroker today to learn more about our hassle-free property buying and selling services and legal services for property inheritance and disputes.

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