One of the most common ways of transferring property and ownership and property rights in the property is by way of will (testamentary disposition). However, if a person dies intestate i.e. without leaving a will to dispose or transfer his assets to his or her legal heirs, then there are laws of inheritance and succession in India. Inherited property is of two types i.e. ancestral and self-acquired. Self-acquired property may devolve by will or by the law of succession.
However, the ancestral property must devolve only through the laws of succession. These laws are usually subject to the respective personal laws of the societies that have their own religion, beliefs, customs and traditions. These customs became laws that have now been codified for simplification and consolidation of the laws on the matter they apply.
The transfer of property via inheritance may happen by the respective laws of succession or via a will. But in some cases, there may be legal hurdles and issues that need to be resolved before everyone can get their share. Some are resolved by the law and some are resolved by legal action from our side. This article seeks to explain inheritance and address some questions related to the topic.
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How do I share the inherited property?
If you are one of the beneficiaries or legal heirs who have inherited property from the testator (person who makes a will) by will or by the laws of succession, you may find that you have a share in the residential property which is not exactly divisible like pizza!
- In this case, you need to prevent conflict which could otherwise blow into a legal dispute that if dragged to court could go on for ages.
- Instead, you can make a mutual agreement between yourselves that can be formalized into an agreement where you can earmark the respective shares in the property and decide the rights and privileges that the heirs can enjoy.
- You have to discuss the expenses to be borne and in what proportion, how to conduct repairs if needed, and whether you need a manager to take care of the property if none of you is going to use it.
- Discussion and co-operation can achieve a lot more than confrontation and the law of contract in India provides a suitable means to enforce your arrangement to share the property.
Is there a time limit on selling an inherited property?
In India, there are tax implications on the period of holding of inherited property.
- If you hold inherited property for less than 24 months, you become liable to pay Short Term Capital Gains Tax (STCG) at the rate of tax leviable on the tax slab you fall under.
- For example as of FY 2020-21, the new tax slabs under the Income Tax Act, 1961 have come into effect. If you have an income of over Rs. 10,00,000 per year then you have to pay STCG tax at the rate of 20% and if your income is over Rs. 1500,000 per year, then the rate of STCG tax leviable is 30%.
- If you hold onto the inherited property for more than 24 months and then sell it, you are liable to pay Long Term Capital Gains Tax (LTCG) at the rate of 20% and with indexation benefit. The indexation benefit involves calculating the purchase price with the Cost Inflation Index of the Purchase year of the property. This helps reduce the tax to be paid.
- Under Section 54 of the Income Tax Act, 1961, you can claim an exemption from LTCG on sale of property by investing the capital gains in up to two house properties. However, the capital gains on the sale of the inherited house property should not exceed Rs. 2 crores.
How can I sell my inherited property?
Often, you may have inherited property that you have no intention of residing in. It is in this case that you decide to sell the property.
- In that case, you need to confirm your ownership of the property. If there is a will and it is registered, it serves as proof of your ownership on the property. In case there is no will, you can apply to the court of law for a succession certificate after submitting the required documents like bank statements, death certificate, and identity proofs
- Then you will need the required documents for sale like the original purchase deed in case of inherited property, a No-Objection-Certificate from the co-operative society in case the property is a part of such co-operative society. A certificate that the property is free of loans and encumbrances is also required. You will also require a PAN Card because as per the Income Tax Act, 1961, Tax of 1% has to be deducted by the buyer before paying the amount to the seller for the sale of property exceeding Rs. 50 lakhs. The buyer, in turn, will deposit this 1% with the Government to claim a Tax Exemption Certificate.
- You may also need to evaluate the value of the property to ensure a fair sale value is received for the property.
- You can then interact with buyers or select an agent who can facilitate the sale between you and the buyer for commission.
- You need to keep track of the tax implications that you may have incurred due to the sale of inherited property.
Do I have to share my inheritance with my siblings?
If you are the sole beneficiary of a will made by a testator, you will inherit the self-acquired property of the testator according to the wishes of the testator after his/her demise. The ancestral property will, however, be apportioned according to the laws of succession.
- In that case, it is exclusively up to you if you want to share the self-acquired property with your siblings.
- However, if you are not the sole beneficiary and there are other beneficiaries to the testator’s estate, you are bound to share the estate with them.
- If the owner dies intestate, the laws of succession are applicable like the Indian Succession Act, 1925 and the Hindu Succession Act, 1956 etc.
- These Acts ensure the equitable disposition of the property and wealth among the legal heirs of the deceased owner and as such, you are bound to follow the law.
How to sell a property which is in my father’s name? He is no more.
In order to have the authority to sell a property, you need to be its owner and that is not possible unless the property is registered in your name.
- If your father died intestate without naming any legal heir, then the law of succession in India applies to you.
- Under this case, you have to seek the consent of your fellow people who have inherited the property to get them to agree with your plan to sell the house.
- You will also need to register the property in your name to effect the sale successfully. If there are other legal heirs also, you need to convince them to relinquish their respective shares in the property by a registered relinquishment deed in favour of you for you to register the property in your name.
- If you achieve this, you can then go about with the sale process of the property as you are the owner of the property.
How to transfer the property after the death of the father?
To transfer property after the death of your father in case he died intestate, you need a deed called a relinquishment deed which is like a gift deed.
- If there are other legal heirs, get them to sign a registered relinquishment deed in favour of you to transfer the property in your name.
- In case, you want to transfer/surrender your share to another legal heir, you can execute a registered relinquishment deed in favour of the other legal heir.
When it comes to inherited property, no tax liability lies when a person inherits ancestral property at the time of inheritance. Ancestral property is property inherited from one’s father, grandfather and great-grandfather. However, if the inheritor chooses to sell the property, capital gains tax is attracted in this case which depends on the period of holding of the asset.
When it comes to devolving of property to legal heirs or beneficiaries, it can take place by the laws of succession or by a will. Knowledge about these laws is required for ascertaining your share in the property in case the property devolves by succession. In case of a disposition of property by will, read and interpret the terms of the will with care to prevent or minimize conflict. There are several legal provisions laid down in case disposition of property by succession that apply mandatorily and have to be followed.
A self-acquired property can be transferred by a will or the laws of succession, but the ancestral property has to devolve according to the laws of succession. Inheritance of property comes with certain tax implications that have to be sorted as an when you deal with the property inherited. Though on inheriting property you do not incur a tax liability if you want to sell the property, you will incur tax accordingly. Thus, a basic knowledge of legal provisions applicable to inheritance can definitely come in handy when dealing with inherited property.