In my family my uncle is there. This is his query - My wife passed away some years back. Some funds have come in through her parents that were split between her and her siblings. So the funds have come to her now. But since she is no more, the funds have come to me, can I encash it? Would it be taxabale?
Hey @Ashwin1,
I am so sorry for your uncle’s loss. Yes, he can encash the funds, provided he has the necessary legal heir documents (like a death certificate or succession certificate) required by the bank. From a tax perspective, money received through inheritance is not taxable in India under the Income Tax Act. While the lump sum itself is tax-free, any interest he earns on that money after depositing it will be subject to tax at his slab rate. It’s advisable for him to keep a record of the transfer to show it was an ancestral split should the tax department ever ask for the source.
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Thank you.
Is that lump sum amount still tax exempt if it is coming from his father in law?
And does that lumps sum amount need to be disclosed in the ITR under tax exempt income? so that ITD don’t raise any queries as we are disclosing it.
The lump sum remains tax-exempt because assets received via inheritance are not treated as taxable income under the Income Tax Act. Even though the funds originated from his father-in-law, the transfer is viewed as an ancestral split passing through his late wife to him as the legal heir, which preserves its tax-free status.
While reporting is not strictly mandatory, it is highly recommended that he discloses the amount in Schedule EI (Exempt Income) of his ITR. This creates a clear paper trail for the ITD, establishing the legitimate source of the funds and preventing potential queries regarding the sudden increase in his bank balance.
So only 50% of the inheritance is due to his wife. The balance has to be split between the other siblings. There no documentary evidence for all this - will the fund transfer through the banks suffice as enough evidence? And the fact that it will be disclosed in the ITR? Eg. even it was a gift and the money is flowing I think father in law would still fall uber definition of relative for this amount to still be tax exempt. Is my thinking correct?
Your understanding is correct. Amount received from a relative (including father-in-law) is not taxable and should be reported as exempt income in the ITR.
Yes, a bank transfer will suffice as evidence of the transaction.