The implications of Uniform Civil Code for taxation and inheritance

Rumours are rife that the federal government could desk the Uniform Civil Code (UCC) within the upcoming monsoon session of Parliament. Currently, guidelines round succession, inheritance, marriage, divorce, alimony, and many others. are ruled by the respective private legal guidelines and faith of the residents. The UCC goals to implement a uniform authorized framework in respect of all such aspects, for all Indian residents, no matter their faith. The implementation of UCC can have some surprising however intriguing tax implications too.

Currently, when an individual dies with out a will, the suitable succession legal guidelines come into impact for the switch of a deceased’s property to the authorized heirs. For occasion, in keeping with the Hindu succession legislation, if a person leaves behind property, it’s primarily handed on to his class I heirs (the widow, kids and mom) in equal share. In their absence, class II heirs (father, grandchildren, nice grandchildren, brother, sister and different family) can declare the property. If the proprietor is a Hindu girl, property get handed on to her husband and youngsters in equal proportion. If none of them are current, the property will go to the heirs of her husband. Failing that, it’s going to go to her mother and father.

According to Muslim legislation, the heirs are the successors of the deceased who’re legally acknowledged by the Sharī‘ah to inherit his estate, given that they are not impeded from inheritance. The heirs succeed to the estate as tenants-in-common in specified shares. There is no joint tenancy in Muslim law and the heirs are only tenants-in-common.

The Indian Succession Act of 1925 gives Christian mothers no right in the property of their deceased children. All such property is to be inherited by the father. The interstate inheritance of Sikhs, Jains and Buddhists is also governed by the Indian Succession Act of 1925.

As per the Income Tax Act, the ancestral property acquired by way of a will or through inheritance is not considered as a ‘transfer’ and isn’t taxable as capital acquire or as earnings from different sources. Also, on the loss of life of an individual, the earnings tax legal responsibility of the deceased is to be discharged by the authorized heirs.

Similarly, within the Central Goods & Service Tax (CGST) Act, in case of the loss of life of a sole proprietor, the enterprise can both be cancelled or transferred to the authorized heirs or a brand new proprietor. The switch of enterprise consists of acquiring authorized succession certificates, transferring property and liabilities, and making use of for the switch of enter tax credit score (ITC).

From taxation perspective, private legal guidelines handle some essential questions—whether or not the individual claiming the acquisition of an ancestral property as non-taxable by advantage of his inheritance or claiming ITC within the capability of his authorized inheritor, is definitely the lawful authorized inheritor or not; who’s to be thought-about because the lawful authorized consultant/inheritor of the deceased, to discharge the earnings tax or GST legal responsibility (if any) of the deceased.

The coming into impact of the UCC will alter these established propositions of inheritance and succession ruled by the private legal guidelines, and would require an applicable revisit within the IT Act in addition to within the CGST Act. Another taxing implication will probably be in respect of the Hindu undivided household (HUF). The IT Act provides a separate authorized ‘person’ standing to an HUF. Like a person, an HUF is entitled to advantages of the essential exemption threshold restrict, slab charges of non-public taxation, tax deductions and exemptions (part 80C of as much as ₹1.5 lakh, house mortgage, deduction on mediclaim premium paid for its members, reinvesting capital positive aspects in prescribed avenues to get exemption, and many others). An HUF can run its personal enterprise to generate earnings and declare all relevant exemptions and deductions that a person is entitled to.

If the UCC is applied, the separate ‘person’ standing of an HUF could now not proceed. It will have an effect on lakhs of HUFs at present submitting their returns of earnings in India, and availing the advantages of assorted tax deductions and exemptions. Parliament will probably be required to make related amendments in quite a few sections of the Income Tax Act, in respect of the authorized individual standing and taxability of HUFs. It may even create some administrative difficulties for the tax administration authorities regarding the rolling again of PAN numbers of current HUFs.

Thus, the UCC goes to have its justifiable share of tax implications too, which must be addressed fastidiously by policymakers.

Mayank Mohanka is the founding father of TaxAaram India and a companion at S M Mohanka & Associates.

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Updated: 11 Jul 2023, 11:15 PM IST

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