I’m a US citizen dwelling within the US. My brother, who lives in India, will inherit my US brokerage account as a present. I’d admire it should you might assist me be taught the tax penalties for my brother and the way that tax influence may be lowered. Is there a distinction if belongings in my brokerage account have been listed US securities or mutual funds? My understanding is that my brother should pay long-term capital positive factors tax on the charge of 20% and the positive factors could be computed from my tax foundation once I bought the shares a few years in the past.
—Name withheld on request
In case an individual residing in India inherits capital belongings primarily based on a Will or upon receiving a present from specified kin, there isn’t any tax levied as a result of occasion of inheritance or reward. However, when the heir sells such capital belongings, tax is levied.
Your brother should pay capital positive factors tax on the positive factors from the sale of US securities or mutual funds each time he decides to promote them.
Such belongings shall be thought-about as long run when held for greater than two years and brief time period when held for a interval lower than two years.
On long-term capital positive factors, a 20% tax (extra cess and surcharge as relevant) shall be levied. Short-term capital positive factors shall be taxed in keeping with the tax slabs relevant to your brother primarily based on his complete taxable revenue.
The interval for which these belongings have been held by you shall be thought-about for calculating the holding interval of the brand new proprietor, i.e. your brother.
Your brother can keep away from paying this capital positive factors tax by investing your entire internet gross sales proceeds in a residential property and by assembly the necessities as laid down beneath Section 54F of the Income Tax Act. He may spend money on capital positive factors bonds to keep away from paying tax on the long-term capital positive factors.
Archit Gupta is founder and CEO, ClearTax.
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