In India, the sale of inherited property is generally not considered income for tax purposes, but rather it is treated as capital gains under the Income Tax Act, 1961. The key factor while answering: Is sale of inherited property considered income or not is that an inherited property is not considered a source of income but an asset that is transferred from one person to another. Also, the tax implications depend on the sale of that asset.
Is Selling Inherited Property Considered Income?
As I already said that inherited property is not considered a source of income but an asset, let me detail you all on this,
Capital Gains Tax: When you sell inherited property, the proceeds from the sale are subject to capital gains tax rather than being treated as regular income. The capital gains are calculated based on the difference between the sale price of the property and its cost of acquisition.
Cost of Acquisition: For inherited property, the cost of acquisition is not the value at which the property was inherited but the market value of the property on the date of the previous owner’s death. This is referred to as the "stepped-up cost of acquisition." The fair market value on the date of inheritance is treated as the acquisition cost for calculating capital gains.
Long-Term vs. Short-Term Capital Gains:
If the property is held for more than 2 years from the date of inheritance, it is considered a long-term capital asset, and the long-term capital gains (LTCG) tax applies.
The LTCG tax on sale of inherited property is 20% with the benefit of indexation, which adjusts the cost of acquisition for inflation over the years.
If the property is sold within 2 years, it is treated as a short-term capital asset, and the short-term capital gains (STCG) tax applies, which is taxed at the income tax slab rate applicable to the seller.
Exemptions:
In the case of long-term capital gains, if the proceeds from the sale are used to purchase another residential property within a specified period, certain exemptions under Section 54 may apply, potentially reducing the taxable capital gains.
Alternatively, exemptions under Section 54EC or Section 54F may also apply depending on how the capital gains are reinvested.
It is important to note that the inheritance of property itself is not taxable in India. The government does not impose any inheritance tax on the transfer of property from a deceased individual to their legal heirs. The tax liability only arises when the inherited property is sold.
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Is Sale of Inherited Property Considered Income?
Yashi
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2024-11-29T13:40:04+00:00 2024-12-02T00:47:56+00:00Comment
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