Tax rules for ancestral property and inheritance: There is an income tax rule on ancestral property and money received as inheritance.
What are the sales rules
If the taxpayer earns by investing the amount received in the inheritance / will, he will have to pay income tax on this income. Similarly, if he sells the inherited house / property or makes it a source of income or interest in the future, he will have to pay tax on this income. Earnings from the sale of a house / property are classified as capital gains.
How will capital gains tax liability be determined?
The capital gains tax liability on the sale of real estate depends on how long the taxpayer has. In the case of inherited property, its holding period is calculated from the date of purchase of the property by the rightful owner and not from the date of inheritance. If the real estate is sold after a holding period of more than two years, the proceeds from the sale will be treated as long-term capital gains. If the holding period of the property is less than 2 years, the proceeds from its sale will come in the form of short-term capital gains. Income tax has to be paid accordingly.
How to deduct tax on capital gains
Prior to the presentation of the Interim Budget 2019, capital gains were available for tax deduction on the sale of a residential home and the purchase of another home if only one residential house was purchased with that money. But the provision was changed in the interim budget of 201 Inter and the change was that if the taxpayer buys or acquires two residential houses built from the sale of houses, he can avail tax deduction on the capital gain of both the houses.
But these terms are together
Some conditions are applicable with this new provision, which are as follows-
1. This benefit can be availed only once in a lifetime.
2. The amount of long term capital gain from sale of property should not exceed Rs. 2 crore. If the amount is more than Rs 2 crore, taxpayers can avail tax deduction only on residential house purchase.
3. In order to get tax relief from the sale of property, it is necessary to buy a second house within a certain period. For example, within two years from the date of sale of the property in case of moving a new house, within three years from the date of sale of property in case of construction of another new house.
You can save tax this way
There is another way to claim a tax deduction on capital gains from the sale of property. That is, if the taxpayer wishes, he can invest the capital gains in capital gains under Section 54EC of the Income-tax Act and claim a tax deduction on it. But keep in mind that the limit for investing in capital gains bonds is up to Rs 50 lakh per financial year.
Is considered ancestral property
In ancestral property, the Income Tax Act covers only money, jewelery and immovable property received from father, grandfather and great-grandfather. Property inherited from the mother’s ancestors is not included in the ancestral property, however, property acquired by the mother or her ancestors is also exempt from tax. If the Income-tax department ever questions the taxpayer about the inherited or movable and immovable property received in the will, the taxpayer will have to prove that the amount or property etc. has been received from the parents or by will or by family inheritance.
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