ITR filing 2024: Inherited properties, assets from ancestors? Here's when and how you'll be liable to pay tax

Movable and immovable assets inherited from ancestors, including real estate properties, are not eligible for taxation under the Income Tax Act, 1961.

A tax liability, however, would arise if these assets turn into source of income for the inheritor. In such a scenario, it will be mandatory to list the income while filing the income tax return (ITR) and pay the tax which will be due.

Normally, one inherits properties and assets from the parents, grand-parents or other relatives following their death.

"If the assets are not generating any income, then it would not be required to consider them while filing the ITR," Mumbai-based chartered accountant said.

However, if the inherited asset generates income then the same would be added to the overall income of an assessee. The taxation rate would depend on the tax slab. For individuals, the highest taxation rate of 30% is levied on annual income above Rs 15 lakh under the news tax regime, and above Rs 10 lakh under the old regime.

The income generated from inherited assets could be dividend or interest on movable assets like gold, mutual funds, and shares; or rental income on immovable assets like real estate property.

Tax on capital gains

The sale of ancestral residential property is considered as long-term capital gain, and the same is subjected to taxation. However, if one is selling the ancestral property to buy or construct a new house, than the taxation could be avoided, as per the Capital Gain Account Scheme, 1988.

For this, one needs to park the amount mopped through the sale of ancestral property in a bank account before furnishing the ITR for that particular year.

However, if this amount is not utilised within three years, then the same is subjected to taxation. The tax will be liable from the date of the sale of the ancestral property.

What's the rule for NRIs?

NRIs selling their ancestral property are also required to pay a tax of on the sale proceeds. However, the rate of taxation is higher at 20% if the property was held for a period of more than two years. If the property was held for less than 24 months, than the tax would be applicable as per the marginal tax slabs for NRIs.

However, the taxation rate would be lower if a Double Tax Avoidance Agreement (DTAA) agreement is in place between India and the country where the NRI is presently residing.

India currently has DTAAs with 88 countries, including Australia, Canada, France, Germany and Italy, among others.