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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Capital Gains

Mrs Kavita Iyer inherited a residential flat from her father, who had bought it 10 years ago. She sold the flat 6 months after inheriting it. How is the gain on this sale classified?

The gain is long-term. When an asset is inherited, the previous owner's period of holding is added to the heir's period. The father held the flat for 10 years, so the total holding easily exceeds the 24-month limit for immovable property, and the sale gives a long-term capital gain.

  1. AShort-term capital gain, because she held the flat for only 6 months
  2. BLong-term capital gain, because the previous owner's holding period is includedCorrect
  3. CNot a capital gain at all, because the flat was acquired by inheritance
  4. DIncome from other sources, because the flat was received without consideration

Explanation

For an asset acquired by inheritance, the holding period of the previous owner is counted along with the heir's own period. Here the total is over 10 years, so it is far beyond the 24-month threshold for immovable property. The gain is therefore long-term. Inheritance is not itself a transfer, but the later sale by the heir is taxable as a capital gain.

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