Laws governing Inherited Property owned by Non-Resident Indians (NRIs) in India: NRI Legal Services
“NRI legal services or NRI real estate legal services have always seen property disputes or real estate dispute with respect to inherited properties or estate. A lot of quarrels and litigations happen between the family members and the real estate gets struck in Court litigation. The property becomes disputed and it becomes difficult to sell it. Thus the Government has enacted specific laws for the inheritance of properties by an NRI or PIO and the same have been discussed in detail.”
Except the agricultural land, plantation property or Farm houses, any other immovable property in India can be bought by Non- Resident Indians (NRIs). But there are NRIs acquiring these properties. That’s because these properties cannot be purchased but can be inherited or can be received as present/gift. In this Article, rules governing inherited property are discussed.
Properties that a NRI can Inherit: Any immovable property can be inherited by NRI or person of Indian Origin (PIO) no matter if its residential, commercial or even agricultural land or Farm houses which they otherwise cannot acquire.
Property can be Inherited from: Both- A person who is resident of India & resident outside of India. The point to be noted is that, the individual from whom such property is being inherited must have acquired the same property in confirmation with Foreign Exchange Management Act (FEMA) regulation or applicable law at time of acquiring.
Tax payable at the time of Inheritance of Property: No income tax has to be paid by NRI to acquire the said property. Capital gains tax have to be paid when NRI sell the inherited property.
Tax implication on Continued Ownership of Inherited Property
In case the NRI or PIO chooses to held the ownership of inherited property, and his/her status is NRI as per Income Tax Act, then any income earned through that said property will be taxed as according to income tax rules.
1. In case the NRI chooses to keep the inherited property vacant for purpose of residing and does not gain any profit from it, then in that situation the property will not be taxed.
2. In case the NRI have more than one house property and that inherited property, even if the NRI keeps them vacant and do not earn any income, one property can be said as self- occupied, no tax has to be paid for that property and besides this, the NRI would have to pay notional rental income for other properties on the basis of amount which he/she would have received if would fetch rent on that property.
3. In case the NRI chooses to rent the inherited property, the same is allowed and income from rent is taxed. Either by Tax deducted at source (TDS) at 31.2% or at the time of filing returns, the NRI himself/herself can pay the tax.
Tax implication on Sale or Gift of Property
In case the NRI chooses to gift the inherited property or sell the inherited property to someone and then income earned by that property remit to other country, there are some restrictions on gifting of said property. The rule is that the NRI can gift the inherited property to NRI, PIO or person who is resident of India. Other than these mentioned categories of persons, the NRI is prohibited to gift the inherited property. In case the gift of property is received by and to non-relatives, the recipient of that inherited property would have to pay tax on the market value of the said property received as gift by NRI.
In case the NRI opt to sell the inherited property, the NRI has to obtain prior permission from the Reserve Bank of India (RBI). In case the inherited property is agricultural land, plantation property of farm house, then the same can only be sold to Indian resident or Indian citizen only. In case the NRI when inherited the property was a resident of India, then he/she can deal with that property the way he/she wants.
Transfer of Inherited Property
To transfer inherited property on one’s name. the following documents are required:
– Registration will
– In case there is no will, then certificate of succession
– Registration papers & Purchase deed
– Certificate validating that the concerned property is free from any sort of liability, disputes or monetary liability
– Proof of property in Municipal Corporation’s records.
Tax on Capital Gains
There is 20 % tax implication on Long-term capital gain and short-term capital gains are taxed as according to the individual ’s income slab rate.
NRI should always obtain best legal advice from the best real estate attorney in India and should always go ahead with an online legal consultation before initiating legal proceedings.
The tax implication on selling of inherited property owned by NRI in India is same as that of any acquired property by NRI through purchase. There are few things that need to be kept in mind by NRIs in case of inherited property like gifting of property to some persons is prohibited and tax on income from rent of property. RBI and FEMA regulation mentioned above are to be complied with.
Authored By: Adv. Anant Sharma & Anjali Swami