Estate Planning

Under Section 56(2)(x) of ITA 1961 (applicable for FY 2025-26 / AY 2026-27), gifts from specified relatives — including spouse, siblings, siblings of spouse, siblings of either parent, any lineal ascendant or descendant, and their spouses — are fully exempt regardless of amount. Gifts from non-relatives exceeding Rs 50,000 in aggregate during the year are taxable as income from other sources. From TY 2026-27 onwards, ITA 2025 governs; the relative exemption continues under the new code.

A Will under the Indian Succession Act 1925 (Sections 57-191 for Hindus, Christians, and Parsis; Muslim personal law governs Muslims) takes effect only on death and requires probate in the jurisdictions of Bombay, Calcutta, and Madras under Section 213 of ISA 1925. A private discretionary trust constituted under the Indian Trusts Act 1882 transfers assets inter vivos, avoids probate, and allows more granular control over distribution timing and beneficiary shares. The choice turns on asset class, beneficiary profile, and whether FEMA ODI or FDI restrictions apply to foreign beneficiaries.

An NRI or Person of Indian Origin inheriting immovable property in India from a resident is permitted to hold or transfer it under FEMA 1999 read with the RBI Master Direction on Acquisition and Transfer of Immovable Property in India (updated 2018). The NRI may repatriate sale proceeds up to USD 1 million per financial year under Schedule I of FEMA Notification No. 20(R), subject to submission of Form 15CA and Form 15CB under Rule 37BB of the Income-tax Rules 1962 and RBI A2 remittance documentation. Agricultural land, plantation property, and farmhouse cannot be inherited by a foreign national under Section 6(5) of FEMA 1999 read with FEMA Notification No. 21(R).

Under Section 49(1) of ITA 1961, the cost of acquisition for inherited assets is the cost to the original owner, or the fair market value as on 1 April 2001 where the asset was acquired before that date under Section 55(2)(b). The holding period runs from the date the original owner acquired the asset, not the date of inheritance. For listed equity and equity mutual funds, long-term capital gains exceeding Rs 1.25 lakh in a year are taxed at 12.5% under Section 112A as amended by Finance Act 2024 with effect from 23 July 2024. Under ITA 2025 for TY 2026-27 onwards, the equivalent provision is Section 67.

An HUF is a separate assessable entity under Section 2(31) of ITA 1961 with its own PAN and a basic exemption of Rs 2.5 lakh. Coparcenary property devolves by survivorship under the Hindu Succession Act 1956; daughters are coparceners with equal rights under the 2005 amendment to Section 6. A gift to HUF from a member is exempt under Section 56(2)(x) since the member qualifies as a relative. Clubbing provisions under Section 64(2) apply to income from assets gifted by a member to the HUF where the member retains a beneficial interest. Partition of HUF assets is not a transfer under Section 47(i) and is therefore not subject to capital gains tax.