Tax Notices on Inheritance in India: Reasons & Solutions

2025-06-24

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Sifting through paperwork, searching for answers on why you’re facing a mountain of taxes, when all you wanted was to inherit your family's wealth?

Here's what you need to know.

It’s been a long while since India abolished the inheritance tax, but it does not mean that you will directly get the assets like a piece of cake. Once a person takes over, whatever you do with the property or money is subject to tax.

This means if you plan to sell it, rent it, or even keep it, the government is eligible to keep a close eye on it, and you are liable to pay taxes on all or any kind of activity you indulge in concerning the property.

Key Takeaways

The tax journey for heirs begins when they pay for the inherited property’s income tax for the financial year in which the owner died.

India does not have any direct inherited tax, but there are other essential taxes associated with holding, renting, and selling the property.

Keeping land and movable property may not be subject to any tax, but selling or renting them can be.

The money in the bank of the previous owner is not taxable, but the interest on the same is.

Documenting everything and being thoroughly informed on the terms and conditions of the property is the only way you can understand where these tax notices come from.

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Income Tax Implications on Inherited Wealth

The most essential point to understand is that even though there is no direct inheritance tax, a legal representative may be required to file the tax return on behalf of the dead person for the year in which the latter died.

Here is how the tax journey begins for the heirs:

Real Estate: Inheriting land will not require you to disclose it in the ITR. However, if you wish to sell the inherited property, you are liable to pay the capital gains tax, which is calculated from the holding period of the previous owner. Meanwhile, if you plan to rent the property, then income from house property or rental income is subject to tax.
Bank Deposits: The interest you inherit from someone’s bank account is taxable and called ‘income from other sources’. Banks also apply Tax Deducted at Source (TDS), shown on your Form 26AS, when certain thresholds are surpassed. You can claim it as a credit when filing your tax return.
Gold and Jewellery: Movable properties such as jewellery, commodities, and more are not subject to any tax as long as you hold on to them. Selling them, however, can be taxable. Just like land property, these costs are also calculated based on the capital gains tax.
Financial Assets- Shares, Mutual Funds, etc: The dividends and interest you earn from the shares are taken as ‘income from other sources.’ Meanwhile, selling financial assets is taxable, just like land property. The transactions related to financial assets are applicable for acquisition cost and holding period rules, just like real estate.

Did You Know?

India abolished the inheritance or estate tax in 1985 because it did not significantly benefit the government and was difficult to manage.

Source: Economic Times

Documentation Required To Avoid Receiving Large Tax Notices

Having a comprehensive will or succession certificate plays a crucial role in calculating and managing the tax. One must carefully go through the property documents at the time of inheritance. Taking over does not mean you are only getting things. Conditions apply, and sometimes you may have to pay out-of-pocket. Carefully go through the bank statements and valuation reports to understand why large tax notices are piling up on your doors.

Conclusion

India doesn't have a specific inheritance tax. However, inherited assets can trigger income tax liabilities when sold or if you are getting income from it via renting or interest. If there have been no such activities and you are still getting tax notices after an inheritance, then expert advice is a must.

Proper planning and professional advice are some of the best ways to get around the tax implications.

Glossary

Estate tax: The tax was once applicable to all those who inherited their ancestral property before it was abolished in 1985.
Income from other sources: Income that does not fit in any of the categories: salary, house property, business, and capital gains.
Tax Deducted at Source (TDS): A type of tax that is deducted at the point of income generation by the government.
Form 26AS: An annual tax credit statement where you can find all TDS, TCS, and other taxes against your PAN.
Indexation benefits: Adjusts investment costs for inflation, reducing taxable income.

FAQs

No. There is no inheritance tax on real estate, financial aspects, bank deposits, and movable property in India.

India abolished inheritance tax in 1985 because the government was spending more on its collection than gaining from it.

Yes. The heir is, however, only liable to pay for the assets he inherited and not the entire ITR of the deceased.

There is no way to avoid the capital gains on the inheritance, but you can minimise it by applying the indexation benefits.

You are not required to pay tax for the inherited shares, but the interest, dividends, and selling them are liable for tax. The best way to avoid this is by carefully understanding the cost of acquisition.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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