While receiving an inherited property, the tax on the property is liable only to the owner and not the receiver. The tax amount is basically calculated on the capital gains on the sale and is taxable for the inheritor. The tax applied on capital gain is 20% for long term capital gain (property purchase exceeds 2 years), while for short term capital gain, it is calculated in the income slab. Here’s how the tax on the sale of inherited property calculated:
i. Collect accurate information on the cost of acquisition and indexation of the property.
ii. Cost of the property when it was bought and not inherited. (The capital gain is calculated on the amount of the property bought by the owner).
iii. The year of acquisition of the property when it was bought is important along with the year of sale of the property (indexation of cost).
iv. You can check the CII (Cost Inflation Index) which is dependent on the year of purchase of the property. You can find the CII from 1981 to 2001.
v. Calculate the cost of capital gains using the formula,
Cost of acquisition x Cost Inflation Index of the year of acquisition / Cost Inflation Index of the year of the sale
[Cost Inflation Index (CII) varies every financial year]
vi. Now, to know the net gain of the transaction, you will have to deduct the cost of capital gain from the selling price of the property.
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How is tax on sale of inherited property calculated?
Sameer Tare
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2020-10-13T13:40:42+00:00 2020-11-12T11:42:26+00:00Comment
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