8 key tax aspects to watch for succession planning

Tax compliance after a property owner's death is crucial. The legal representative, as per Section 302 of the Income-tax Act 2025, must report all income earned up until the owner's passing. This also includes settling any outstanding tax debts, typically up to the value of the inherited estate.

Post-death, income from the estate such as rent or interest could fall under the executor's jurisdiction under Section 312 of the Income-tax Act 2025. However, once the estate is fully distributed, the heirs are responsible for reporting their respective income shares.

The tax treatment varies depending on whether the property was solely owned by the deceased or was part of a Hindu Undivided Family (HUF). Ancestral property doesn't automatically become HUF property for tax purposes; factors like acquisition method, prior tax filings, and the presence of a shared family fund influence this.

Partitioning an HUF property doesn't typically count as a tax transfer under Section 70(1)(a) of the Income Tax Act 2025. Yet, a partial partition isn't recognized for income-tax assessment, potentially allowing the HUF to continue being taxed as before under Section 315(8) of the Income Tax Act 2025.

When multiple heirs exist, each is generally taxed only on their individual share of rental income and capital gains. However, depositing all income or sale proceeds into one heir's account can lead to discrepancies in tax records.

Historical cost records, like the original purchase deed or improvement invoices, are vital for accurate capital gains computation. Without them, the heir must adopt the previous owner's cost under Section 73 of the Income-tax Act 2025. For properties bought before April 1, 2001, a fair market value as of that date can be used instead.

In cases involving multiple heirs, the Tax Deducted at Source (TDS) must be applied to each seller's PAN based on their share of the property transaction. If any heir is a non-resident, separate withholding rules apply. Lastly, outstanding tax liabilities of the deceased remain the responsibility of the legal representative, unless the estate can pay them off.