Tax query: Taxation implications on property inheritance, share and sale

My mother and three other siblings had inherited a plot of agricultural land near Surat in Gujarat. Before passing away, she had made a will by which her share in that property would belong to her brother’s son, say X. However, she had also stated in the will that upon sale of that property, X would distribute the net sale proceeds between me and my two sisters in a given proportion. Accordingly, her share in the said property got transferred in the name of X upon her death. The whole property was later on sold and we have now received ₹30 lakh to ₹60 lakheach from the will executor being my mother’s share in the sale proceeds of that land after deducting all expenses, taxes, etc. Can I and my sisters claim this amount as inheritance and report the same in our ITR under ‘exempt income’? What supporting documents should we have?

Praful Shroff

We understand that as part of the individual’s mother’s will, she transferred her share of the agricultural land to her brother’s son X. Further, the will also states that on sale of the land, the net proceeds were to be transferred to the individual and his/her two siblings.

We assume that while X has limited economic interest in the land, it has been stated that the land stands transferred in his name upon her death. It could be construed that X would be executing the instructions as per the will of the deceased when the proceeds are transferred to the individual.

We also assume that the plot in Surat is not a rural agricultural land as per section 2(14) of the Income-tax Act, 1961 (‘the Act’). Hence, the transfer would classify as a transfer of capital asset subject to tax at the time of sale. We assume that X would have paid the requisite capital gains tax on the said sale of land.

Hence, in the current case, the sale proceeds from the sale of land would be taxed in the hands of X and the subsequent net consideration (after deduction of taxes and expenses) would be transferred to the individual and his/her siblings. Based on the above it could be contended that the transfer of the net proceeds is a mere distribution of inheritance per the instructions given in the will of the deceased and hence may not be taxable in the hands of the individual and his/her siblings under the Act.  

Please note this position could be viewed as litigative and therefore it may be imperative to view the language of the will. It may also be important to have a copy of the will and the sale deed of the land that enumerates the details of the share and consideration for record purposes. Further, there should be some documentation that is also maintained to show that the proceeds received by the individual and his/her siblings were net of tax where the original sale transaction has been subject to  tax and X has executed the mandate given in the will.

The writer is a Partner with BDO India LLP

Send your queries to taxtalk@thehindu.co.in

COMMENT NOW