Property Inheritance Laws for NRIs in India
Jun 14, 2018 Home Trading Steps
An NRI or a PIO can inherit any immovable property in India whether it is a residential, commercial or agricultural. For the agricultural properties, the NRIs can inherit land or a farmhouse which they cannot acquire otherwise. NRIs or PIOs can inherit property from anyone including relatives and friends. They can also inherit it from the NRIs or a PIO subjected to certain terms and conditions.
RBI needs to approve the inheritance of the property if the property is in favour of a person who is not a resident of India. It is imperative to know that the property that the NRI will acquire needs to be bequeathed in accordance tot eh laws of foreign exchange.
So if the property was acquired without the permission from the RBI then it cannot be inherited by the NRI or PIO.
RBI needs to approve the inheritance of the property if the property is in favour of a person who is not a resident of India. It is imperative to know that the property that the NRI will acquire needs to be bequeathed in accordance tot eh laws of foreign exchange.
So if the property was acquired without the permission from the RBI then it cannot be inherited by the NRI or PIO.
Tax at the time of inheritance:
The estate tax was abolished long back; hence the person does not have to pay the incidence of inheritance anymore. If the property is gifted by a person in his life as a gift and the value of the property exceeds Rs 50,000, then the receiver has to show the market value of the property as his income unless the receiver is the specified relative of the donor.
Tax on continued ownership of the inherited property:
The NRI or PIO can continue to the ownership of the property or dispose of it. If the NRI decides to dispose of it, there are certain tax implications for the time the property was owned by the NRI. Wealth tax has been abolished in the country hence there is no wealth tax implication for the NRI.
The NRI will have to offer the income from the inherited property in India and pay the tax as applicable. If the NRI decides to keep the property vacant and use it only for his visits, then he does not have to offer any income from the property. If he received more than one residential property, then he will have to keep one for personal use and find the market amount of rent it would have fetched on rent, and then pay the notional tax for the same.
The NRI will have to offer the income from the inherited property in India and pay the tax as applicable. If the NRI decides to keep the property vacant and use it only for his visits, then he does not have to offer any income from the property. If he received more than one residential property, then he will have to keep one for personal use and find the market amount of rent it would have fetched on rent, and then pay the notional tax for the same.
Tax at the time of sale or gift of property:
The NRI can sell the property or give it as a gift to someone who is either an NRI or PIO or a permanent resident of India. He cannot give it to anyone who isn’t either of these. In case, the NRI is gifting the property to a non- relative, the recipient must pay the tax on the market value of the property.
Capital tax on the property inherited by the NRI:
In case the property is sold by the NRI, the person who buys the property will have to deduct the income tax under Section 195 of Income Tax Act, on the taxable amount of capital gains that is applicable for the property.
The NRI has an option to pay the tax on long term capital gains at 20 percent or avail tax benefits under Section 54 and 54F, by investing in a new residential house. Alternatively, the NRI has an option to invest up to Rs 50 lacs in capital gain bonds of specified institutions like Rural Electrification Corporation or National Highways Authority of India or Power finance Cooperation and Railway Finance Cooperation, within the specified time limit.
The NRI has an option to pay the tax on long term capital gains at 20 percent or avail tax benefits under Section 54 and 54F, by investing in a new residential house. Alternatively, the NRI has an option to invest up to Rs 50 lacs in capital gain bonds of specified institutions like Rural Electrification Corporation or National Highways Authority of India or Power finance Cooperation and Railway Finance Cooperation, within the specified time limit.
Repatriation of the sale proceeds of the inherited property:
NRIs can repatriate the sale proceeds up to $1 million every year, without any approval from RBI, provided the taxes have been paid timely. Special permission is required from RBI is the remitted amount exceeds $1 million per year.
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