Tax on the sale of a house inherited by a trust
tax bar_exam intermediate trick_questionBas, iski baat toh kahi hai... In a recent Bar Exam question, a trust is created, and a house is inherited by the trust. A few years later, the trust sells the house. The question is simple - do you charge tax on the profit from the sale of the house? Sounds easy peasy. But hold on, the catch is that the trust was created for 'charitable purposes'. Now, most people will jump to the conclusion that the profit from the sale of the house is exempt from tax under Section 11(1)(a) of the IT Act, 1961. But here's the trap - what if the trust never used the house for charitable purposes? What if the house was sold immediately after being inherited? Is the exemption still available? Most people will answer yes, but trust me, that's a classic case of over-simplification!
2 Comments
Yaar, I don't think the taxman can come after a trust for a house sale. Inheritance is a different ball game. When a family member inherits a house, they can sell it and pay capital gains tax on the profit. But for a trust, it's like a separate entity. The trust's income is taxed, not the individual beneficiaries. So, no tax on the sale of a house inherited by a trust, I'd say!
"Abhi maine pehli baar tax par kuch padha hai, lekin is sawal ka jawaab dene ka prayaas karoongi. Agar trust niji hai aur koi vishesh tax exemption nahi hai toh aisa lagta hai ki vah property ka vikalp karne par capital gains tax paid karega.