Rules of Inheritance: Know How to Transfer Property in Your Name

Finance

What is yours today will be someone else’s tomorrow, underlines the core philosophy of the Bhagavad Gita. Religious texts apart, inheritance or passing on of legacy for both tangible and intangible assets is a stark reality.

In today’s world where property is a prized asset, property inheritance comes with its own set of challenges. Here is a breakdown on everything you should know about property inheritance and safeguarding it.

Legal formalities of property transfer

Loss of a loved one does not automatically ensure inheritance or transfer of property. There are various considerations like whether the property was self-acquired or passed on from generations, the will of the deceased, number of legal heirs, etc.

All these aspects require fulfillment of various legal formalities before property can be transferred. Even then, as a new owner, the property must be transferred in your name. Along with the property, you also inherit all liabilities like any loans outstanding or government dues like property tax, etc.

Inheritance and type of property

The nature of the property is key to understanding property inheritance. A property can either be self-acquired by the deceased or acquired through succession as per Hindu succession laws. Non-Hindu religious denominations currently follow their personal laws in this regard.

In case of Hindu succession, the property comes under Hindu Undivided Family (HUF) regulations. For HUF properties, all legal heirs or coparceners acquire a right over the coparcenary property by birth. Coparcenary laws are applicable for both ancestral as well as self-acquired property if the deceased dies without a will for self-acquired property. An amendment in the Hindu Succession Act, 1956 has made women as coparceners giving them an equal right on all ancestral property even after marriage.

Title transfer

For a self-acquired property where the deceased leaves a Will, the inheritance involves some legal formalities. For a single heir, the process requires submission of death certificate, copy of Will, and property papers to get ownership transfer. In case of multiple heirs, other heirs can challenge the Will if found to have any discrepancies. In such a case, the Will needs to be registered as per law with the help of a legal executor.

For property where the owner expires without a Will, inheritance formalities will involve a settlement document reached by all legal heirs. Absence of Will and no settlement will mean the rules of succession will apply on the property.

Mutation is getting the property in your name in all government records post inheritance. Without a change of title ownership in government records like municipal corporation, you will not be able to use the property for any loan mortgage, rent agreement, or sale.

Taxation aspects

If you have inherited a property where someone else is living, be wary of adverse possession laws. Under adverse possession, the occupant can claim the property if you don’t claim it within 12 years. So prolonging the legal and property transfer may actually work against you.

Also, consider the taxation aspect when considering outright sale of inherited property. While you have no tax liability at the time of acquiring an inherited property, profits made on sale are liable for capital gains tax. The holding period considered for such sale is not the date of inheritance but the actual date of purchase of the property.

The Long Term Capital Gains (LTCG) tax liability is computed on the difference of net sale proceeds and indexation cost of acquisition of the inherited property. Currently, LTCG tax is fixed at 20% while Short Term Capital Gains tax is calculated as per the income tax slab of the inheritor.

Despite the current subdued real estate markets, property is best considered as a long term asset. Take all decisions only after close financial scrutiny and long-term financial planning.

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