tax laws
Assets, inheritance, Tax, tax laws

Assets Received As Gift, Inheritance Under Will Is Not Treated As Income Under Tax Laws

The recipient of the gift has to pay capital gains tax upon sale or transfer of the asset. Taxpayer cannot change tax regime after filing income tax return. Shifting from growth to dividend option and vice-versa in a mutual fund scheme will give rise to capital gains and/or loss and will be subject to securities transaction tax

Is a nominee in receipt of redemption proceeds from investments made in mutual fund schemes by his father liable to pay capital gains tax? If yes, then how the tax liability computed?


Under Section 56(2) of the Income-tax Act, 1961, any asset received as gift or inheritance either under a Will or under the personal law is not to be treated as income of the recipient at the time of receipt of such asset. However, the recipient has to pay tax on capital gains as and when the asset is sold or transferred.

So though there is no tax liability on getting the inheritance, but you will have to pay tax on capital gains earned on redemption of the mutual fund schemes. The capital gains would be long-term or short-term depending on the type of the scheme and the combined holding period of you and your father, and would be taxed accordingly. For the purpose of cost, the amount paid by your father to invest in the mutual fund scheme will be treated as your cost.


I have now realised that my wife and daughter paid excess tax for FY22-23 by choosing the wrong tax regime. Their liability was lower under the new tax regime, whereas the income tax return (ITR) was filed under the old tax regime. Can we claim to get the refund now?


Under the provisions of the Income-tax Act, 1961, a taxpayer is not allowed to change his/her choice of particular tax regime after filing the tax return. Therefore, you have to evaluate beforehand which tax regime is beneficial for you.

Since this cannot be treated as mistake either, you cannot even file an application for rectification of mistake under Section 154.


Recently, I requested my mutual fund distributor for change of option from dividend payout to growth option in one of the mutual fund schemes that I had invested in. I was surprised to note that they had deducted securities transaction tax (STT). I was also told that it is a switch from one option to another and STT is payable. Are they correct in doing so?


Shifting from one option to another option of a mutual fund scheme is treated as transfer and gives rise to capital gain and/or loss. The mutual fund has correctly charged STT on the transaction.

Moreover, you will have to pay tax on such capital gains. The rate of tax on the capital gains would depend on the holding period and type of the mutual fund scheme.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)

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