Inheritance of property by Non-Resident Indians

Non-Resident Indians (NRIs) are eligible to inherit any immovable property within India, which may include farm or agricultural land. However, they are not entitled to acquire these kinds of properties by way of purchase. NRIs can inherit property from anyone, which means even those who are residing outside India but have a property in India can bequeath the same to an NRI, subject to the condition that the property should have been purchased under the guidelines of the Foreign Exchange Management Act (FEMA) — which was enforced to regulate all foreign exchange transactions — that were in existence at that time of the purchase of the said property. Even foreign nationals can inherit property in India from a person who was, or still is, a resident of India.

 

Tax implications at the time of inheritance:

 

With the abolishment of Estate Duty, there are no tax implications as such at the time of inheritance. Hence, neither the representative of the deceased, nor the NRI inheriting the property, has to pay any tax at the time of inheritance. However, if the same property is gifted and the value of the said property exceeds Rs. 50,000/-, the recipient has to add the market value of the property to his total income, unless s/ he is among the specified relatives of the person whose property s/ he is inheriting.

 

Tax implications at the time of sale or gift of property:

 

NRIs can sell an inherited property or gift the same and remit the money outside India. However, NRIs can gift an inherited property only to an Indian resident or to another NRI/ Persons of Indian Origin (PIO) (apart from agricultural land). If a property is gifted to a non-relative, the recipient will be liable to pay tax on the market value of the gifted property.

 

An NRI has to obtain prior approval from the Reserve Bank of India (RBI) for selling his/ her property to another NRI/ PIO. Foreign nationals cannot sell or transfer a property acquired by way of inheritance, without prior permission from the RBI.

 

Capital gain on the sale of inherited property:

 

When a property is sold by an NRI, the buyer will have to deduct income tax under Section 195 of the Income Tax Act, on the taxable amount of capital gains at the rates applicable. If the total holding period — including that of the deceased’s (i.e., combined holding period of inheritor and the deceased) exceeds 24 months, the profits made on such sale shall qualify as long-term capital gains. The NRI has the option to either pay the tax on such long-term capital gains at 20%, or avail tax benefits under Section 54 and Section 54F of the Act. Short-term capital gain tax is levied at a progressive slab rate (plus applicable Goods and Services Tax) on capital gains.

 

Repatriation of sale proceeds of an inherited property:

 

Repatriation means sending the money back to one’s own country. An NRI can remit the sale proceeds of up to USD one million every year, without any approval from the RBI, provided taxes have been paid on the sale of such property. However, if the amount exceeds USD one million, prior permission from the RBI will be required to remit the money.

Content Source – India Law Offices

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