A Reddit user recently shared that their mother inherited a property from her own mother and later sold it to a builder who allegedly insisted on making the payment in cash. According to the post, the family is now holding ₹50 lakh in cash with no banking trail for the sale consideration, although they possess the property documents related to the transaction. As reported by Mint, the user wrote that the mother was alone during the dealing and ended up accepting the cash payment without knowing better.
Tax experts advise that the sale of an inherited property should be reported under the 'capital gains' schedule in the income tax return (ITR), and not as ordinary income. According to Mint, assuming the taxpayer had no other sources of income during the financial year, the return form will depend on the nature of earnings reported from the sale and other disclosures required. Since the return contains only capital gains, ITR-2 is the relevant form for the taxpayer in question.
For inherited property, the date and cost of acquisition of the previous owner are considered for tax purposes. As reported by Mint, tax expert Chandni Anandan explained that the taxpayer steps into the shoes of the previous owner, so the original purchase cost of the deceased owner is treated as the base cost. The holding period of the original owner is also added to the taxpayer's holding period to determine whether the gain is long-term or short-term. In practice, inherited property is very often treated as a long-term capital asset, with gains computed by taking the sale consideration minus cost of acquisition and other eligible transfer expenses.
Any transaction done in cash can create scrutiny risk, even if the taxpayer has the sale documents. According to Mint, Gaurav Makhijani, Managing Partner at MGA, noted that cash receipt violates provisions of the Income-tax Act which restrict specified cash transactions. The parties involved will face penal consequences, and the fact that the buyer insisted on cash is generally not regarded as a valid legal defence against such violations. Section 269SS restricts recipients from taking cash loans or deposits of ₹20,000 or more from any other person.
Taxpayers must maintain a complete set of documents supporting both the ownership and sale of the inherited property. As reported by Mint, the required documentation includes registered sale deed, documents establishing inheritance such as will, succession certificate, or probate, bank or cash receipt evidence, builder correspondence, capital gains computation sheet, original purchase deed, records establishing previous owner's acquisition date, and stamp duty valuation records. The taxpayer must disclose the full value of sale consideration, cost of acquisition, resulting capital gains, and details of any exemption claimed while filing their tax return.
