My father has sold his two properties and wants to distribute its proceeds amongst hus three adult children that includes one married daughter. Ofcourse he can do that after paying his capital gains tax. My question is how this will be treated in the hands of children. Will they have to pay tax again?

Ans: Hello,

Your mother's intention to distribute her investments among her children is a thoughtful gesture. Here's a simple explanation of the process and its tax implications in India.

1. Gifting Process: Your mother can gift her shares and mutual funds to her children. This can be done through a gift deed or even a simple letter stating her intention to gift the shares. The letter should mention the details of the shares/mutual funds, the name of the recipient, and the relationship between the donor (your mother) and the donee (her children).

2. Tax Implications for the Donor (Your Mother): In India, any gift given by a parent to their child does not attract any tax, irrespective of the value. So, your mother will not have to pay any tax when she gifts these shares and mutual funds to her children.

3. Tax Implications for the Donee (Her Children): The children will not have to pay any tax upon receiving the gift. However, if they decide to sell these shares or mutual funds in the future, they will be liable to pay tax under the head 'Income from Capital Gains'. The tax rate will depend on whether it's a short-term or long-term capital gain.

4. Gift Deed: Although it's not mandatory, it's advisable to execute a gift deed for each child. This will serve as a legal document and can be useful in case of any disputes in the future.

I hope this helps!

Ans: Amount received from father is not an Income.

Ans: Here's some information to help you navigate this situation:

Buyer's Perspective: The buyer is likely concerned about ensuring a clean title to the property. Having multiple owners with different ownership percentages can be complex for them. From their perspective, paying equally avoids future disputes or complications regarding ownership.

Your Options:

Negotiate with Buyer: You can explain your situation and try to convince the buyer to pay according to your agreed percentages. Perhaps offering an indemnity clause (where you take responsibility for any future ownership disputes) could help. A lawyer can help craft such an agreement.

Partition Deed: You can get a partition deed prepared by a lawyer. This deed will legally divide the ownership into specific percentages as agreed by all of you. This establishes clear ownership and allows the buyer to distribute the sale proceeds accordingly.

Capital Gains Tax:

Tax Implications Not Affected by Distribution: The capital gains tax is calculated based on the property's overall gain, not the individual distribution. You will each be liable for capital gains tax on your share of the property, regardless of the sale proceeds received.

Record Keeping is Key: Maintain proper records reflecting the inheritance and the agreed-upon distribution percentages. This will be crucial when filing your individual tax returns.

Recommendation: Consult a lawyer specializing in property inheritance and taxation. They can advise you on the best course of action considering your specific situation and local laws. They can also help with the partition deed and navigate the legalities of the sale with the buyer.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in