India's capital gains taxation has undergone significant reforms with the Finance (No. 2) Act, 2024, introducing a uniform system from July 23, 2024. Short-term capital gains (STCG) on equity shares and equity mutual funds are now taxed at 20% (Section 111A), while long-term capital gains (LTCG) on these assets attract 12.5% above ₹1.25 lakh annually (Section 112A). For other assets like property, gold, and debt mutual funds, LTCG is taxed at 12.5% without indexation from July 2024 onwards, with indexation benefits available only for property acquired before this date. The tax treatment varies by asset type and holding period - property held over 24 months qualifies as LTCG, while equity shares require 12 months for LTCG classification.
India maintains no inheritance tax on assets passed through wills or by succession, as confirmed by Section 56(2)(x) of the Income Tax Act. This provision becomes Section 92 under the Income Tax Act 2025 from FY 2026-27. The country abolished estate duty in 1985, which had charged up to 85% on estates exceeding ₹20 lakh, collecting barely ₹20 crore in 1984-85. However, selling inherited assets triggers capital gains tax based on the original purchase price and holding period. Long-term capital gains on property attract 12.5% without indexation since July 23rd, 2024. For example, a flat inherited in 2005 for ₹40 lakh sold for ₹1 crore would result in a taxable gain of ₹60 lakh under the 12.5% rate. However, using the indexation method with CII values of 117 for 2005-06 and 376 for 2025-26, the indexed cost becomes approximately ₹1.29 crore, making the sale tax-free as the inflation-adjusted cost exceeds the selling price.
Gift tax in India follows a simple categorization under Section 56(2)(x), with gifts from relatives remaining 100% tax exempt regardless of amount. The list includes spouses, siblings, parents, grandparents, and lineal descendants. Gifts from non-relatives are taxable above ₹50,000 in aggregate annually, with the entire amount taxed at the recipient's slab rate. Property gifts from non-relatives face stamp duty charges, with residential property to family members attracting a flat ₹200 in Maharashtra, while gifts to wider family circles are charged at 3% of market value under state rates. The absence of inheritance tax creates opportunities for tax-efficient wealth transfer, but families must understand the tax implications on selling inherited assets and the income they generate. As reported by financial experts, treating inheritance tax-free while ignoring the tax on subsequent income can lead to tax notices.
Inherited assets generate taxable income from the date of inheritance, with rent from inherited flats taxed as Income from House Property after a 30% standard deduction. Interest from inherited deposits and dividends from portfolios fall under 'Income from Other Sources' at the recipient's slab rate. Section 54 exempts long-term capital gains if the recipient purchases another house within two years or builds one within three years, capped at ₹10 crore. Section 54EC allows parking up to ₹50 lakh of LTCG in government-backed bonds for five years, requiring investment within six months. Section 64 clubs income from assets gifted to spouses or minor children back into the original owner's return, with only ₹1,500 per child exempt for minors. Property is one of the most common sources of capital gains, with the tax treatment depending heavily on holding period and acquisition date.
The current capital gains tax framework offers several planning opportunities for taxpayers. Section 54 allows reinvestment in residential property to defer or reduce tax liability, while Section 54F provides proportionate exemption when reinvesting gains in residential houses. Section 54EC enables parking up to ₹50 lakh in NHAI or REC bonds for five years, requiring investment within six months. Taxpayers can deposit unutilised gains in a CGAS account before the ITR due date to preserve exemption eligibility. Capital losses can be set off against eligible gains in the same year, with unabsorbed losses carried forward for up to 8 years provided the return is filed within the original due date. The absence of inheritance tax creates opportunities for tax-efficient wealth transfer, but families must understand the tax implications on selling inherited assets and the income they generate.
