Income Tax Rules : After the father passed away, his children have equal rights to his wealth. The big question is, if they get this money, will they have to pay taxes on it? A taxpayer raised this concern. He mentioned that he had a joint bank account with his dad. After his father died in April, the funds were transferred to him, and the account was closed. So, will he need to pay taxes on that money?
Tax rules regarding money received as gifts
Tax expert and CA Balwant Jain explained, “Section 56(2) of the Income Tax Act lays out the rules for taxing gifts. It says that if the total value of gifts (including cash) goes over Rs 50,000 in a financial year, taxes will apply. But there are some exceptions. If the money is inherited through a will or personal law, it won’t be taxed. Since India doesn’t have an inheritance tax, money received after the father’s death is considered inheritance and won’t be taxed.”
Other children’s claims to the money
He pointed out that it’s crucial to understand that the taxpayer got this money as a trustee for another legal heir. If the taxpayer’s father didn’t leave a will before he passed, the other legal heirs can claim their share of the money that was transferred to the taxpayer. However, if the father bequeathed the money to the taxpayer in a will, then they aren’t required to share it with the other legal heirs. In that case, the entire amount belongs to the taxpayer. If the taxpayer is the only legal heir, then the money is entirely theirs.
Jain also mentioned that since the money received from the father isn’t classified as income, the taxpayer doesn’t have to report it in their income tax return. However, if they want to, they can include it in their income tax return under the Schedule Exempt Income (EI).