Ancestral Properties and Assets in India: A Comprehensive Tax Guide
Discover how ancestral properties and assets are taxed in India, including real estate, investments, and more.
Itr FilingAncestral PropertiesAssets TaxationIndiaReal EstateInvestmentsNrisCapital GainsDtaaTax ExemptionReal EstateJun 22, 2024
In scenarios involving movable assets such as mutual funds, gold, shares, and the like, the new possessor is initially exempt from tax burden. However, if these assets generate revenue, such as rental payments or dividends, the inheritor must accurately report these earnings and fulfill the necessary tax obligations associated with it.
The sale of ancestral property is governed by Section 54 of the Income Tax Act (ITA), which allows individuals to park the sale proceeds in the Capital Gain Account Scheme before furnishing the return of income. The amount deposited under this scheme is deemed to be the cost of the new asset and is eligible for exemption under Section 54 of the ITA.
Non-resident Indians (NRIs) deriving gains from the sale or transfer of ancestral property or self-owned property are taxed under the head 'Capital Gains.' Long-term capital assets are subject to capital gains tax at 20% (after indexation) under Section 112 of the IT Act, while short-term capital assets are taxed as per the marginal slab rates applicable to the NRI investor.
NRIs can claim long-term capital gains exemption under Section 54 of the IT Act by investing the sale proceeds in acquiring or constructing another residential house property. They can also claim exemption under Section 54EC by investing the sale proceeds in specified tax-saving bonds.
The Double Tax Avoidance Agreement (DTAA) signed by India with various countries establishes a predetermined rate for deducting taxes on income disbursed to residents of those nations. NRIs receiving income in India will be subject to Tax Deducted at Source (TDS) based on the rates specified in the respective DTAA.
To claim DTAA benefits, taxpayers can use three methods deduction, exemption, and tax credit. It is essential to understand these methods to avoid double taxation and ensure proper tax compliance.
Frequently Asked Questions
Is there a tax liability upon inheriting assets in India?
No, there is no tax liability upon inheriting assets in India. However, a tax obligation arises when the subsequent owner decides to sell the property.
How are ancestral properties taxed in India?
Ancestral properties are taxed under the head 'Capital Gains' when sold or transferred. Long-term capital assets are subject to capital gains tax at 20% (after indexation), while short-term capital assets are taxed as per the marginal slab rates applicable to the taxpayer.
Can NRIs claim tax exemption on ancestral property in India?
Yes, NRIs can claim long-term capital gains exemption under Section 54 of the IT Act by investing the sale proceeds in acquiring or constructing another residential house property.
What is the purpose of the Double Tax Avoidance Agreement (DTAA)?
The DTAA establishes a predetermined rate for deducting taxes on income disbursed to residents of various countries, thereby avoiding double taxation.
How can NRIs claim DTAA benefits?
NRIs can claim DTAA benefits by using three methods: deduction, exemption, and tax credit. It is essential to understand these methods to avoid double taxation and ensure proper tax compliance.
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