India Inheritance and Gift Tax Guide

No Inheritance Tax in India

• Estate Duty abolished (1985): India abolished estate duty (inheritance tax) on 16 March 1985. There is no federal or state-level inheritance tax, estate tax, or death duty.
• No tax on inherited assets: Heirs do not pay any tax on the value of assets they inherit — whether cash, property, shares, jewellery, or other valuables.
• Capital gains on inherited assets: When the heir eventually sells the inherited asset, capital gains tax applies based on the holding period of the original owner (the previous owner's holding period is added to the heir's holding period). The cost of acquisition for the heir is the cost incurred by the original owner (no step-up in basis as in the US).

Gift Tax Rules

Gift tax in India is governed by section 56(2)(x) of the Income Tax Act. The key rules:

• Gifts up to INR 50,000: The aggregate value of gifts from non-relatives received in a financial year up to INR 50,000 is fully exempt. This applies to cash, movable property, immovable property, and other assets.
• Gifts exceeding INR 50,000: The entire amount (not just the excess) is taxable as "Income from Other Sources" in the hands of the recipient. For example, if you receive INR 75,000 from a non-relative, the full INR 75,000 is taxable.
• Immovable property: If immovable property is received at a value less than the stamp duty value by more than INR 50,000, the difference is treated as income of the recipient.
• Movable property (shares, jewellery, etc.): If received without consideration and the aggregate fair market value exceeds INR 50,000, the full value is taxable. If received at a price less than the fair market value by more than INR 50,000, the difference is taxable.

Gifts from Relatives — Always Exempt

Gifts received from the following relatives are completely exempt from income tax, regardless of the value:

• Spouse (including gifts received on the occasion of marriage)
• Brother or sister (including half-siblings and step-siblings)
• Brother's spouse or sister's spouse (siblings-in-law)
• Lineal ascendants or descendants (parents, grandparents, children, grandchildren, great-grandchildren)
• Spouse of any lineal ascendants or descendants (e.g., daughter-in-law, son-in-law, father-in-law, mother-in-law)

Gifts received on the occasion of marriage from any person (including non-relatives) are also exempt under section 56(2)(x).

Gifts from Non-Residents and NRIs

Gifts received from non-residents (including Non-Resident Indians — NRIs) follow the same rules. Gifts from relatives are always exempt. Gifts from non-relatives are taxable above INR 50,000. Note that foreign gifts may also be subject to the Foreign Exchange Management Act (FEMA) rules — gifts from NRIs up to INR 1 crore per financial year are permitted under the liberalised remittance scheme, but amounts above this require RBI approval.

FAQs

Do I need to pay any tax on inherited property?

No. India has no inheritance tax, so you do not pay any tax on the value of inherited property. However, when you sell the inherited property, capital gains tax applies based on the cost incurred by the original owner (no step-up in basis). The holding period of the original owner is included in your holding period for determining long-term or short-term capital gains.

Can my father give me INR 10 lakh tax-free?

Yes. A father (lineal ascendant) is a "relative" under section 56(2)(x). Gifts from a father to a child are completely exempt from income tax, regardless of the amount. No tax is payable by either the giver or the recipient.

What happens if I give a gift to a non-relative?

The giver does not pay any gift tax (gift tax was abolished in 1998). However, the recipient will be taxed if the aggregate gifts from non-relatives exceed INR 50,000 in a financial year. The entire amount (not just the excess) is added to the recipient's income and taxed at the slab rate.