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No tax is levied on inherited assets or money

  • In India, there is no income tax levied on inheritance. However, any income earned on subsequent investment of the inherited assets shall be taxable
  • The rental income arising to your wife out of the share of property gifted by you to your wife shall be clubbed as taxable income in your hands

I received 50 lakh through inheritance. I gifted half of it to my aunt in Canada. Will I have to pay income tax on the full amount or the amount that’s left after what I gave my aunt?

—Shreya Kulkarni

In India, there is no income tax levied on inheritance. However, any income earned by you on subsequent investment of the inherited assets or money shall be taxable in your hands. It would be advisable to have documentation on record to substantiate that the sum was received under an inheritance.

However, tax implications in your aunt’s hands would need to be evaluated separately. Any gift received from a specified relative will not have any tax implications in your aunt’s hands. However, as per the definition of “relative" under the Act, you do not qualify as a “relative" of your aunt. Accordingly, as the amount of gift exceeds 50,000, the same shall be taxable in your aunt’s hands as income from other sources. Further, it would be advisable for any such gift to be documented in a legal document viz. a gift deed and placed in the records.

My wife and I co-own a flat for which we have contributed equally. The property is registered jointly, but my wife is the first owner. I have gifted my share to her through a deed. The rent goes to her bank account and is reflected in her tax returns. Do I still need to declare rental income for my share?

—Subramanian

The rental income arising to your wife out of the share of property gifted by you to your wife shall be clubbed as taxable income in your hands and not in your wife’s hands. However, income generated from any further investments made by your wife from such rental income need not be clubbed with your taxable income and would be taxable in her hands.

As the gift is being given by a specified relative (i.e., spouse), the gift transaction will not give rise to any tax implications for either of you.

Generally, the gift of an immovable property can be effected by a registered gift deed along with payment of applicable stamp duty, depending upon the state in which the property is situated. However, you should seek legal opinion on the appropriate documentation and stamp duty implications for the same.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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