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No tax levied on inheritance in India even for NRIs

  • When inherited assets are sold by the inheritor, capital gains tax applies to both residents and non-residents
  • Long-term capital gains are taxed at 20%, excluding education cess and surcharge

Is dividend income from stocks taxable in India? The stocks were bought from a non-resident (external) or NRE account. Also, is there any cap on dividend income for NRIs?

—D.R. Masand

Dividend received from an Indian company is exempt from tax since the company declaring such dividend already deducts dividend distribution tax before paying you. In case of a resident individual or HUF (Hindu Undivided Family) or firm, the dividend is taxed at the rate of 10% if the total amount of dividend received from a domestic company during the year exceeds 10 lakh (as per Section 115BBDA of the Income Tax Act). It is to be noted that tax shall be levied on dividend income to the extent it is in excess of 10 lakh. Note that the source of the funds from which these stocks were purchased does not matter for deciding how dividend income shall be taxed.

Since you are non-resident in India, the total dividend income received by you from Indian companies shall be exempt from tax. However, it is likely that you are a tax resident of another country. Your dividend may be taxed in such other country. If such income is being taxed twice, you need not worry, as you may be able to claim double taxation relief. You may not have to pay tax on the same income twice.

We are Canadian citizens. My father who is 56 years old recently inherited 2 acres of farm land and a flat with rentals in Ludhiana. He wants to transfer everything to me and wants me to sell everything. What will be the tax implication of inheriting and selling the properties for a Canadian citizen?

—Keerat Singh

There is no tax in India on inheritance. However, when these inherited assets are sold by the inheritor, capital gains tax applies to both residents and non-residents who sell property situated in India. To identify the tax rates and method of calculation, it is important to first identify whether these are long-term or short-term capital gains. A property must be held for more than two years for it to qualify as a long-term capital asset. To calculate this period of holding, the period for which it was held by the previous owner is also included. In your case, it seems this asset will be a long-term capital asset. Long-term capital gains are arrived at after reducing the indexed cost of acquisition from the sale price. In case of inheritance, the cost to the previous owner is indexed from the year of original purchase. This is done by multiplying the cost by the Cost Inflation Index (CII) of the year of sale and dividing it by CII of the year of purchase. In case the property has been bought before 2001, you can use CII of FY 2001-2002, which is the base year for the purpose of calculation. Long-term capital gains are taxed at 20%, excluding education cess and surcharge.

If you choose to invest these gains in another property, you can claim capital gains tax exemption. Or you can purchase capital gains bonds. In case you decide to invest in a property but are not able to make the purchase by the due date of filing of tax return of the year in which property is sold, you can deposit these gains in a capital gains account scheme, as per the time and manner prescribed.

Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at mintmoney@livemint.com

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