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Inheritance Out-of-Court Settlement: Tax Implications?

T S Khurana

T S Khurana   |500 Answers  |Ask -

Tax Expert - Answered on Oct 30, 2024

A certified management accountant since 1993, T S Khurana is a fellow member of The Institute of Cost Accountants of India. His areas of expertise are income tax, specifically litigation cases, and GST.

Since the last 21 years, he has also been providing expert advice on financial matters, including investments and diversification of funds, and wealth building in the long term to his clients.
He believes that investment in real estate is the safest way for better returns and wealth generation over a period of time.

A former chairman of the Chandigarh Chapter of Institute of Cost Accountants of India, T S Khurana has also served as member of its technical committee.... more
Megha Question by Megha on Oct 21, 2024Hindi
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Dear Khuranaji, I am plaintiff in a court case over inheritance of properties owned by my deceased parent. The court case is about to go to trial stage. Other party(my close blood relation) is interested to do an out-of-court settlement. I would like to know what would be the tax implications on me upon accepting some X amount from the other party as part of the settlement so that it can help me arrive at a figure from my end. Currently I am not working but do have income from FDs etc. Thanks & regards, Anonymous

Ans: In this case it is a family settlement over inherited property.
Any amount, which you get out of family settlement will not be taxable under Income Tax. It is because, this is not your income but share of property of your parents.
It is advisable to avoid court cases, since it takes too long to settle & then the same can be challenged in higher courts.
Most welcome for any further clarifications. Thanks.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

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Asked by Anonymous - May 01, 2024Hindi
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Hi Would like to get some ideas on the following My wife may get around 40 to 50 lakhs as part of her family settlement and the amount will be paid her mother to her directly Apparently my wife is working and she is a tax payer ! With this settlement money incurs any tax ? Also what is the ideal way to invest this bulk amount in any MFs ? Suggest please
Ans: Firstly, congratulations to your wife on the impending family settlement. It's an opportunity to secure your financial future. Let's address your concerns regarding taxes and investments.

As your wife is a taxpayer, it's crucial to understand the tax implications of the settlement amount. In India, money received from family settlements is generally not taxable under the Income Tax Act, provided it's received from a relative and doesn't fall under any taxable category like gifts or income. However, it's advisable to consult with a tax expert to ensure compliance with tax regulations.

Once the settlement amount is in hand, it's wise to consider various investment options to make the most of it. While direct investments in Mutual Funds (MFs) might seem appealing, it's essential to approach it strategically.

Regular funds through a Certified Financial Planner offer personalized advice tailored to your financial goals and risk tolerance. They can help you navigate the complexities of the market and make informed investment decisions.

Instead of putting the entire amount into MFs at once, consider a staggered approach through Systematic Investment Plans (SIPs). This spreads the investment over time, reducing the risk of market volatility.

Diversification is key to a robust investment portfolio. Allocate the settlement amount across different types of MFs, including equity, debt, and balanced funds, to manage risk effectively.

Avoid the temptation to time the market or chase high returns. Stay focused on your long-term financial goals and maintain discipline in your investment strategy.

Remember, every investor's situation is unique. Seek professional advice from a Certified Financial Planner to create a customized investment plan aligned with your financial objectives and risk appetite.

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K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Building a new career may seem daunting, but your foundational knowledge, life experience, maturity, and resilience are assets that bring credibility and empathy in many healthcare-adjacent and academic roles. If you choose to reskill, your medical education will remain an advantage as you transition into roles that offer both professional fulfillment and a better work-life balance suited for mothers. Take small, actionable steps—start with a focused short-term course or consider part-time/remote roles initially to gain confidence and practical exposure. Positive and self-compassionate thinking, coupled with steady professional upgrades, will influence your family and child, modeling resilience and lifelong learning.

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