Inheriting various forms of wealth in India—ranging from jewellery and artwork to stocks and cryptocurrencies—initially does not incur any income tax. However, the intricacies of managing, reporting, and eventually selling these assets introduce significant legal and tax obligations that are frequently overlooked by families.
According to Mehul Bheda, a Partner at Dhruva Advisors, the Income Tax Act classifies inherited property, including immovable assets, shares, jewellery, art, and virtual digital assets (VDAs) like cryptocurrencies, as tax-neutral at the point of acquisition. It is only upon the sale of these inherited assets that capital gains tax becomes applicable. Bheda clarified that the recipient of the inheritance assumes the original cost basis and holding period of the previous owner, which collectively influences whether the gains are classified as long-term or short-term. Long-term gains typically face a tax rate of 12.5%, while short-term gains are taxed at the individual”s prevailing income tax rate. Notably, exemptions exist for long-term gains if they are reinvested in residential properties (up to ₹10 crore) or specific government bonds (up to ₹50 lakh). Conversely, profits derived from VDAs, including cryptocurrencies, incur a flat tax rate of 30% plus applicable surcharges and cess, with no reinvestment exemptions.
Bheda also pointed out that disclosure of inherited assets is obligatory in particular circumstances. Individuals with assets valued over ₹50 lakh must report these under Schedule AL, while holdings in foreign jurisdictions necessitate disclosure under Schedule FA.
Legal and Procedural Variations by Asset Class
Tanmay Patnaik, a Partner at Trilegal, elaborated on the varying legal processes associated with different asset types. For physical assets such as jewellery, gold, and art, meticulous documentation is essential for valuation and custodial purposes. Certain artworks, deemed national treasures, are subject to export restrictions under the Antiquities and Art Treasures Act of 1972.
Financial assets like stocks and mutual funds operate within a regulated framework governed by SEBI, and registered nominees can facilitate asset transmission. However, the absence of a nominee may necessitate obtaining a succession certificate or probate. In the realm of digital assets, cryptocurrencies are legally inheritable; however, access to these assets is contingent on possessing the private keys. A lack of proper documentation could result in the permanent inaccessibility of such assets.
Cross-Border Inheritance Challenges
Families with assets overseas face additional complexities. Common pitfalls include relying on a single Will for multiple jurisdictions, neglecting inheritance taxes applicable in countries like the United States or the United Kingdom, and failing to disclose foreign assets, which may lead to penalties under Indian law. Furthermore, the repatriation of inherited securities from India is restricted to $1 million per financial year due to FEMA regulations.
Proactive Planning for Smooth Asset Transmission
Experts recommend strategic planning to mitigate potential disputes, loss of access, or unexpected tax liabilities. Suggested measures include maintaining comprehensive inventories of all assets, executing jurisdiction-specific Wills for cross-border holdings, utilizing private family trusts for managing complicated estates, and ensuring proper documentation for accessing digital assets and VDAs. Patnaik stressed that while Indian law permits the inheritance of all asset classes, families must engage in meticulous planning to guarantee seamless transfers and adherence to legal requirements.
