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No tax on inheritance but sale of such property taxable
September, 06th 2013

At present, there is no tax on inheritance in India. When you sell the inherited properties, you would be liable to pay income-tax in India on the gains earned by you on the sale. For determining gains, you will get a deduction of the cost incurred by your parents to acquire the property as well as any expenditure that you directly incur to sell the property. If the date of acquisition of the property is more than three years back, you will get a deduction of the indexed cost of acquisition which is the original cost as adjusted by the cost inflation index from the year of purchase to the year of sale. If the property has been acquired before 1 April 1981, you have the option of substituting the fair market value as on 1 April 1981 in place of the original cost. Thereafter, you can claim indexation benefit on the substituted cost.

The rate of tax, including cess on long-term capital gains, is 20.6% and on short-term capital gains, it is 30.9%. If your income exceeds Rs.1 crore, the rate of tax would be 20.66% and 33.99%, respectively. Since you are a non-resident, the purchaser of the property is required to withhold tax at source on the entire sales proceeds. To avoid that, the purchaser can make an application under section 195(2) of the Income-tax Act to the assessing officer for determining the actual tax liability or you can make an application under section 197 for nil/lower deduction of tax at source, giving details of the taxable gains.

The proceeds on sale of the residential property will be credited to your non-resident (ordinary) account and can thereafter be repatriated to the UK, subject to payment of due taxes. Under the present Foreign Exchange Management Act guidelines, general permission has been granted to NRIs to repatriate up to $1 million per financial year after obtaining a certificate from a chartered accountant in form 15CB certifying that due income-tax has been paid.

Since you are a tax resident of the UK, you may be liable to tax in the UK in respect of your Indian income subject to any exemption provided under the Double Tax Avoidance Agreement (DTAA) between India and the UK. The DTAA provides for taxing capital gains under the respective domestic laws and hence the UK tax laws will apply. You will, however, be entitled to get the tax credit in respect of the taxes paid in India on the capital gains.


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