UCC (Uniform Civil Code) 2024: Impact on Property Inheritance & Taxation
There are rumors going around that the government might table the UCC in the Monsoon session of the Parliament. At present, the rules on succession, inheritance and marriage, divorce and alimony are laid down in the personal laws and religions of the people. The aim of the UCC is to lay down uniform rules on all these aspects for every Indian citizen regardless of his or her religion. Implementing the UCC may have some surprising but interesting tax implications.
At present, in the event of an untimely death, the relevant succession laws enter into force to transfer the assets of the deceased to the heirs. For example, according to Hindu succession laws, if the deceased is a man, the property of the deceased is primarily passed down to his Class I heirs (Widows, Children and Mother) in equal proportions. In the absence of Class I heirs, Class II heirs (Father, Grandchildren, Great Grandchildren, Brother, Sister and Other Relatives) may take possession of the property. In the case of the Hindu woman who is the owner of the property, assets are passed down to her Husband and Children in equal proportions. If any of them are absent, the property goes to her Husband’s heirs. Otherwise, it goes to her Parents.
Muslims believe that the heirs are the descendants of the deceased and are recognized by the sharia (Islamic law) to inherit the deceased’s estate because they are not prevented from inheriting the estate. The heirs inherit the estate as tenants in common in certain shares. In Muslim law, there is no joint tenancy and the heirs are tenants in common.
Indian Succession Act 1925 provides that Christian mothers do not have any claim on the property of their dead children. All property inherited by the father is governed by the Act. The Indian Succession Act also governs the interstate inheritance of the Sikhs, the Jains and the Buddhists. The Income Tax Act states that the ancestral property acquired through a will or inheritance is not regarded as a transfer and is not taxed as capital gains or as income from any other source. Also, upon the death of the person, the deceased’s income tax liability is to be paid by the legal heirs.
Similarly, under the CGST Act, in the event of the sole proprietor’s death, the business may be wound up or transferred to his heirs or to a new business owner. The process of transferring a business includes obtaining a legal succession certificate, transferring assets, and transferring liabilities and applying for transfer of Input Tax Credit (ITC) From a tax point of view, personal laws deal with some critical questions: Who is the actual legal heir (i.e. the person who claims the acquisition of ancestral property as not taxable by his inheritance) or who is claiming ITC as his legal heir? Who is to be regarded as the actual legal representative /heir (i.e., the deceased’s legal representative) to discharge the deceased’s income tax or (if applicable) GST liability?
The entry into force of the Uniform Commercial Code (UCC) will change these traditional concepts of inheritance and inheritance under the personal laws and will necessitate a review of the IT Act and CGST Act respectively. Another taxing impact will be on the Hindu Undivided Family (HUF) as the IT Act grants a separate legal ‘person’ status to the HUF as an individual. Like the individual, the HUF enjoys the benefits of basic exemption threshold, slab rates, tax deduction and exemptions (Section 80C up to Rs. 1.5 lakh), home loan deduction, medi claim premium payment for members, reinvestment of capital gains to get exemption etc. The HUF can also run their own business to earn income and avail of all the exemptions and deductions as an individual.
If the Uniform Harmonized Conversion (UCC) is implemented, the status of a HUF as a separate ‘person’ may cease to exist. This will have a negative impact on thousands of HUFs who are currently filing their income tax returns in India and taking advantage of various tax exemptions and deductions. The UCC will require Parliament to amend several sections of the ITA as regards the legal status of HUFs and their taxability. It will also give rise to some administrative issues to the tax administration authorities regarding the rollback of PAN numbers of current HUFs. Therefore, the UCC will have its share of tax implications that need to be carefully considered by policy makers.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.
