Legal And Tax Process For Inherited Property In India: Explained

Inheriting a property in India is a common occurrence. People pass on their family homes to their offspring in old age as a sign of love, trust, and a symbol of kinship to hold on for longer.

This is not just an emotional activity; it is passing on security and stability to the next generation. It is considered a simple family matter, but in reality, it is governed by tons of rules, documents, and laws.

Documents Required To Initiate The Process

The process of inheritance begins with the right documentation. Without the right paperwork and documentation, a person can still not be the legal owner of the property they have rights to. Authorities don't rely on oral claims or family arrangements. Ownership must be established through records. One of the most critical documents is the document certificate of the deceased. Without the death certificate, no inheritance-related application will be entertained. This certificate formally establishes the process of succession.

Advocate Mayank Arora, Partner, Chambers Of Bharat Chugh, explains “In order to effect transfer process in cases of inheritance, once first needs to obtain a legal heir certificate/surviving member certificate from the district magistrate / concerned revenue authority to show that one is legal heir to the deceased thereafter the next step entails obtaining a succession certificate from the district court basis the legal heir certificate.”

Next is the proof of ownership in the name of the deceased. This can include a registered sale deed, allotment letter or registration papers.

If the deceased had left behind a will, the process becomes simpler and more straightforward. While registration of a will is not mandatory under Indian law, a registered will holds value as proof and reduces the scope for disputes in the future.

Identity and address proof of all legal heirs is also a requirement. KYC documents like Aadhaar card, PAN card, passport, or voter ID are also required of both parties.

Legal Heir Certificate and Succession Certificate

Two documents mentioned in inheritance matters are the legal heir certificate and the succession certificate; while they sound similar, they have very different purposes.

A legal heir certificate is a document that is issued by the local revenue authority. It identifies the lawful heirs of the deceased. It is used for the property mutation. The process for this is simple; it requires submitting the death certificate, identity proof, and family details.

A succession certificate is issued by the civil court. It is required for movable assets like deposits, shares, and securities. In some property-related cases that involve disputes or complex ownership, courts may require a succession certificate. Obtaining these is a major task as it involves court petitions, public notices, and hearings.

A legal heir certificate has a very limited role in legal standing, while succession certificates work best if there are many parties or stakeholders involved. “It is only through a succession certificate that a legal heir can duly prove that he/she has succeeded to a property by intestate succession, and the title can be formally inherited. Heirs may apply for the Succession Certificate before the District Judge as per Part X of the Indian Succession Act, 1925,” adds Mayank.

Income Tax Treatment of Inherited Property

Under the income tax laws in India, any inherited property is not taxable by itself, and there is no additional tax levied on such transfers. Receiving a property through inheritance does not attract income tax at the time of inheritance.

Though how the property is used or sold later on does have taxation liability. If the property is rented out, income tax is to be paid under “income from house property”. If the property is sold, capital gains tax will be levied, short-term or long-term, depending on how long the property was held by the new owner.

Mayank Arora explains further, “The property inherited by way of will or intestate succession is not taxable in India. However, any subsequent income generated from the said properties will be taxable. It is also pertinent to note that if the sale of any such inherited property causes a capital gain to the seller, such capital gain will be taxable. Further, for computing the capital gain in such cases, the cost of the asset sold is considered to be the same as the cost at which the deceased person acquired the asset.”

Inherited property in India is not just a transfer on the basis of kinship; legal owners are recognised only after proper documentation, certification and records are submitted. While inheritance of an asset like property remains tax-free, your future plans with it don’t.

For properties that are high-value or have multiple claimants, professional and legal advice is a must. Ignorance of this can not only cause financial loss but also emotional loss.