Receiving money or property from your parents—whether during their lifetime or after their demise—is an emotional and often life-changing event. But it also raises an important tax question:
Do you need to pay income tax or file an ITR for inherited assets or money?
The short answer is: Inheritance is not taxable, but what you do with the inherited asset may trigger tax implications.
In this blog, we’ll clarify the tax treatment of inherited property, money, or shares, whether you need to disclose it in your ITR, and under what circumstances the tax department may raise a notice.
1. Is Inheritance Taxable in India?
No. India does not have an “inheritance tax” or estate duty currently.
Under Section 56(2)(x) of the Income Tax Act, money or property received without consideration is taxable unless it is received from a relative (which includes parents). So:
✅ Money or property received from your parents (alive or deceased) is fully exempt under the law.
This applies to:
- Cash or bank transfer
- Real estate property
- Gold, jewelry, art
- Shares and mutual funds
2. Do You Still Need to File an ITR If You Receive Inheritance?
Here’s where it gets nuanced.
✅ You don’t need to pay tax or show inheritance as income in the ITR.
BUT…
You may still need to file an ITR if:
- You earn income from the inherited asset (e.g., rent, dividends, capital gains)
- Your total income after inheritance crosses the taxable limit
- You are required to file ITR due to foreign asset reporting, high-value transactions, or Section 139(1) criteria (like spending over ₹2 lakh on foreign travel or holding assets over ₹50 lakh)
📌 For example: If you inherit a flat and start earning ₹25,000/month in rent, you must include that rental income in your ITR.
3. What Happens If You Sell an Inherited Property?
While inheritance is tax-free, the sale of inherited assets is not.
If you sell inherited property, you are liable to pay Capital Gains Tax, and the original date of acquisition (by your parent) is considered for computing capital gain.
So if your father bought a house in 1995 for ₹5 lakh, and you sell it in 2024 for ₹90 lakh, your capital gains will be calculated using indexed cost from 1995.
This needs to be reported in your ITR under “Capital Gains” with appropriate supporting documents.
4. What If You Receive Foreign Inheritance?
If you are a resident Indian and receive:
- Foreign bank funds, or
- Assets located abroad (property, shares, etc.)
You are required to disclose them in your ITR under the Schedule FA (Foreign Assets) section—even if there’s no income.
Not reporting these assets can lead to penalties under the Black Money Act, including notices, hefty fines, and even prosecution.
5. Can You Get a Notice from the IT Department for Inheritance?
Generally, you won’t get a notice just for inheritance.
However, you might get a notice under Section 148 (income escaping assessment) or Section 139(9) (defective return), if:
- You deposit large sums (e.g., > ₹10 lakh) in your bank account and don’t explain the source
- You sell property and don’t report capital gains
- You receive high-value shares and don’t file ITR accordingly
⚠️ In such cases, the tax department may ask for gift deeds, will copy, succession certificate, or death certificate to verify your claim.
6. What Documents Should You Keep?
Always keep the following documents for future proof:
- Will or registered Gift Deed
- Death certificate of the parent
- Property papers or bank account statements showing transfer
- Valuation report (if required for capital gain calculation)
- Proof of relationship (Aadhar, PAN, etc.)
These are essential for responding to notices or during a scrutiny.
7. Summary: When Do You Need to File ITR After Receiving Inheritance?
Scenario | Taxable? | ITR Required? |
Received money/property from parents | ❌ No | ❌ Not mandatory, unless income crosses limits |
Earn rent/dividends from inherited assets | ✅ Yes | ✅ Yes |
Sell inherited property | ✅ Yes (Capital Gains) | ✅ Yes |
Receive foreign inheritance | ❌ Not taxable | ✅ Must report in Schedule FA |
Conclusion
Inheritance by itself does not trigger a tax liability. But any income arising out of the inherited asset must be reported and taxed accordingly. Also, if you receive foreign assets, make sure you disclose them to stay compliant and avoid harsh penalties.
It’s wise to consult a tax advisor if you’ve inherited property, money, or shares, especially when large sums or cross-border assets are involved.
