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Tax implications of inherited house property

amit (Software Consultant) (102 Points)

28 March 2023

Hi,

Please help to understand tax implications(if any) for inherited residential property

We are residing in the property in question and property is in name of my father, who expired few months back

it has now 2 legal heirs , while 2nd legal heir like to relinquish her part in lieu of cash amount from 1st legal heir

what would be tax implication (liability or benefit) on 1st legal heir for taking over half of inherited property and purchasing other half by giving compensation to 2nd legal heir

should we go for gift deed or sale deed (or any other deed) ??? to transfer this property to 2nd legal heir, to avoid major transfer charges or tax liability??? in delhi

Kindly help

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7 Replies

sabyasachi mukherjee (25988 Points)
Replied 28 March 2023

First one gift deed second one sale deed.
compensation cannot be legally justified.

amit (Software Consultant) (102 Points)
Replied 28 March 2023

thanks for quick response ....

i didn't understand this statement

"compensation cannot be legally justified."

and also if any tax implications to me for all these transactions???

SUSHANT BIDAYE (578 Points)
Replied 28 March 2023

In my view if you consult a good lawyer and get a family settlement kind of document done,. there should be no rax implications

amit (Software Consultant) (102 Points)
Replied 28 March 2023

After FS document, we do need to transfer property ?

SUSHANT BIDAYE (578 Points)
Replied 28 March 2023

Yes. naturally the property needs to be transferred in the legal heir's name.

the stamp duty aspects ,since this is a succession , should not apply but only a good lawyer can guide you.

CA Sanat Pyne (F.C.A. & M.COM) (19992 Points)
Replied 01 April 2023

Inheriting a residential property can have tax implications, especially when it comes to transferring the property to another legal heir or selling it. Let's address your questions one by one:

Tax implications for inheriting a residential property:

In India, inheritance of a residential property is not subject to any inheritance tax. However, if the property is sold in the future, the capital gains tax will be levied based on the fair market value of the property at the time of inheritance and the selling price.

Tax implications for taking over half of the inherited property and purchasing the other half by giving compensation to the second legal heir:

If the first legal heir takes over half of the inherited property and purchases the other half by giving compensation to the second legal heir, there will be no tax liability on the first legal heir for taking over the property. However, if the second legal heir receives any amount as compensation, it will be treated as income, and he or she will be liable to pay income tax on it.

Gift deed or sale deed:

If the second legal heir is willing to relinquish her part in exchange for a cash amount from the first legal heir, the best option would be to execute a gift deed instead of a sale deed. This is because a sale deed attracts stamp duty and registration charges, which can be substantial, depending on the state where the property is located. However, gift deeds are exempt from stamp duty and registration charges in some states, including Delhi.

In conclusion, inheriting a residential property does not have any tax implications, but if the property is sold in the future, capital gains tax will be applicable. If the second legal heir relinquishes her part in exchange for cash, it is recommended to execute a gift deed instead of a sale deed to avoid substantial stamp duty and registration charges.

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