Synopsis: In India, there is no inheritance tax imposed on equity, mutual funds, or bonds. However, inherited investment may still attract taxation in other forms such as capital gain, interest earned, or redemption.
Inheritance of securities like stocks, mutual funds, or bonds is common when a family member dies. The good news for Indian investors is that there is no tax liability when the securities are transferred. But the bad news is that the recipient can incur capital gains taxes once he sells those inherited securities.
Is There Any Inheritance Tax in India?
No. India abolished estate duty (inheritance tax) in 1985. This means the transfer of inherited wealth is exempt from any form of taxation, and the income is taxed only when there is income or capital gains generated from it.
Taxation Rules on Inherited Investments for Nominees
Note: The original purchase price and holding period of the deceased individual are normally taken into consideration in case of capital gains calculation for financial inheritances.
Documents Required for Claiming Inherited Investments
- Death certificate
- PAN and KYC documents
- Nominee details
- Succession certificate or probate in certain cases
The documentation process may differ across banks, mutual fund houses, brokers, and bond issuers.
Also read: GIFT City Investments: How to Invest in Global Mutual Funds Through GIFT City
Which Inherited Investments Can Remain Tax-Free?
Certain tax exemptions in respect of inheritances from investments made in EPF, PPF, tax free bonds, Sovereign Gold Bonds (SGBs), lump-sum withdrawals from NPS schemes, and income generated through life insurance may still be available even post transfer to nominees or heirs based on specific conditions in the scheme and withdrawal norms. However, earnings such as EPS family pension, and annuity earned through NPS, income earned from interest, and capital gains may be taxable.
Key Takeaway
Although inheritance tax is not applicable in India, one may be taxed at various stages post-acquisition through gains, interest, pension, and redemption, depending upon the nature of investment.
Written By Ameet S
