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Are inherited investments taxed?

Relax With Tax | August 30, 2005

You have a question about house rent allowance, medical allowance or even a general tax query.

Here's where we step in with our experts, Relax With Tax.


I have inherited some fixed deposits and bonds after the demise of my parents.

Will I be taxed on them?

 - Naveen Kapoor

No. You will not be taxed on inheriting them.

However, the interest you earn on these deposits and bonds would henceforth be taxable in your hands.

You would need to verify from your parents' tax records if they included the accrued interest on such instruments in their personal tax returns in the past.

If this has been done, you would be taxable only for that portion of accrued interest that has not been considered in their personal returns.

Suppose your parents make an investment of Rs 10,000 in a fixed deposit in financial year 2000-01. They earned a simple interest of 10% per annum for five years. The annual interest would work out to Rs 1,000.

The fixed deposit is scheduled to mature in the financial year 2005–06.

Let's assume the inheritance took place in the financial year 2005–06.

Considering the above facts, if the yearly interest of Rs 1,000 has been included/ offered for tax in your parents' personal return in the intermediate years (2000-2005), then the maturity proceeds of Rs 15,000 (Rs 10,000 plus Rs 5,000 interest) would not be taxed in your hands.

In case the same has not been done, then you will be taxed on the Rs 5,000 you receive as interest when the deposit matures.

The above interest income would be taxed at the slab rate in which your income is categorised.

Till last year, there was relaxation in tax for such interest in the form of deduction under section 80L. However, the same has been removed from the current year 2005–06 so no deduction would be available to you.

I have to pay my previous company a sum of Rs 75,000 as a bond for leaving the company before the scheduled period of one year.

This bond was signed for attending a workshop abroad.

Can this be deducted from my income tax?

- Gagan

You would not be eligible for any tax benefit in this case.

This is a payment towards non-compliance of certain job conditions and is just an application of income which has been already offered for taxation.

I took a housing loan and am paying the Equated Monthly Installments. Due to my job requirement, I am staying in a rented place with my parents.

Both the homes are in the same city.

I have not given out my apartment on rent and it is lying vacant.

Can I avail of HRA and home loan deductions?

- Sunny Nath

If the reason for staying in a rented home could be validated, then yes you could stay in a rented place and own a flat in the same city and avail of both House Rent Allowance deduction as well as home loan deduction benefits.

The justification needs to be strong enough for the taxman to agree to such a situation in case your returns are scrutinised.

Generally, the demand of an individual's job is a valid consideration.

Please also read Claim home loan benefits, HRA.

Got a question for Relax With Tax? Please write to us!

Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).

Illustration: Dominic Xavier

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