There is many
misconceptions regarding the taxation on the sale of inherited property. Some
think that the money received on the sale of inherited property is tax exempt
while some others think it is fully taxable. Actually, there is no tax
accountability at the incidence of inheritance. But the profit made on the sale
process is taxable as capital gains.
How to calculate the
capital gain?
The capital gain is
calculated on the basis of the duration or period for which the asset was held.
If the inherited property is held for more than a period of 24 months, then it
is considered as a long-term asset. If the period is less than 24 months then
it is called as a short-term asset. The time period is calculated in such a way
that it includes not only the period for which the current owner held the
property but also the period for which it was held by the previous owner. In
the case of a short-term asset, The actual cost of acquisition and cost of
improvement are deducted and the net amount is taxed. In the case of a
long-term asset, the owner has the right to deduct the cost of acquisition and
the improvement cost as enhanced by the cost inflation index multiplier.
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