The Non-Resident Indians [NRIs] have sheer interest in the property they have in India. But, some NRIs find inheritance of property difficult and they leave the hope of getting the property title transferred to their name.
But, the difficulties people face during completion of the property inheritance procedure is due to the lack of information related to various rules in India.
Therefore, we have incorporated the Rules for inheriting property by the Non-Resident Indians [NRIs] according to the Income Tax law and other permissions which are necessary for the successful completion of the same in this blogpost.
NRIs Can Inherit These Types of Properties:
- An NRI is allowed to inherit immovable property/asset only by the Indian Citizen.
- An NRI can inherit agricultural land, farmhouse or both. A buyer can avail the ownership of these properties as it cannot be gained by the means of purchasing property in India.
- An NRI is eligible to inherit property in India only by the Indian Citizen that too according to the provisions made for buying/selling/gifting/inheritance of property by the NRIs.
- An NRI requires approval from the Reserve Bank of India [RBI] for inheriting property in India.
- An NRI requires a registered will or bequeathed to inherit property from an NRI or POI [Person of India]. Also, the title transfer takes place according to the foreign exchange laws of that particular time.
Tax Implication on Continued Ownership of Inherited Property:
- The NRI won’t fall under the Wealth Tax Law but an NRI/POI who is selling the property is required to meet several tax implications during the tenure of holding the ownership of the inherited property.
- In case, the NRI stays out of India for a particular period, then he/she has to pay tax on the income earned from the inherited income.
- The NRI won’t need to pay any tax if he/she keep the inherited property vacate to stay during a visit to India.
- The NRI is required to pay estimated rental income for the inherited property. Yes, in case the NRI owns dual properties in India including the inherited property is required to declare one property as self-occupied.
- An NRI is eligible to pay tax according to the Income Tax laws in India if his/her annual income including the value of the inherited property exceeds the minimum tax emption limit.
Tax Scenario While Selling/Gifting Property:
- An NRI can’t sell/gift his/her property located in India to a foreign national.
- In case, the NRI is gifting his/her property to a non-relative then the recipient is required to pay tax for inheriting the same according to the current market value of the property.
- A foreign national can inherit property in India via inheritance of property from the Indian citizen with the approval of RBI the Reserve Bank of India.
- A foreign national who has inherited property from the Indian national can’t sell or transfer the property title to any other person without the consent of the Reserve Bank of India.
Capital Gains on Property Inherited by NRIs:
- The profit earned on the sale of an inherited property is known as Capital gains. The profit turns into long-term capital gains if the combined holding period of the inheritors and the deceased is for more than two years that is 24-months.
- In case, the NRI sell his/her property then the buyer can avail tax deduction under Section 195 of the Income Tax Act. This deduction will be based on the taxable amount of the capital gains as per the current rate.
- The NRIs has the option to enjoy tax deduction under Section 54 and 54F by buying a new residential property from the profit earned by selling the inherited properties. Else, the NRI is required to pay 20% tax on the long-term capital gain.
Repatriation of the Sale of Inherited Property:
- An NRI can bring-in the amount earned by selling the inherited property. The person can bring-in the amount upto one million dollar annual in India without seeking the approval of RBI – Reserve bank of India.
An NRI requires RBI approval for bringing in more than one million dollars every year in the country.