To all the NRIs inheriting property in India, it is understandable that there is a lot of confusion since you are being ruled by the laws of two countries and India is a secular one, factors like religion also count. Regardless, this article covers most of the important information that will help you get a good hold of the situation and decide for yourself how to go about your inheritance in India. The article covers the basic topics of properties, inheritance laws, and tax implications, followed by the repatriation of inherited property as well.
Different Types Of Property And Their Inheritance Laws
Since India is a secular country there are multiple inheritance laws and types of property. The 2 basic things are that the property is inherited by the successors with the help of the Will that is made by the deceased or by laws of succession, that is when the individual passes away before making their Will. In the first case, the deceased person can nominate different shares to different people as per their wish, which is called Testamentary Succession. In the 2nd case, the property passes upon to the legal heirs as per the inheritance laws, which is called Intestate Succession.
Types of Property
There are two types of properties, namely, ancestral and self-acquired property.
Ancestral Property - When it comes to ancestral property, it is the property that has been inherited by the individual from their previous generation, and hence, will be inherited by further generations. A father does not have the right to dispose of their children from inheriting the ancestral property, and neither can he include or divert the property to a third person.
Self-Acquired Property - When it comes to self-acquired property, the father or mother has the right to gift the property or name it under the name of anyone even apart from their children, to which the children cannot go against it.
Apart from the above-mentioned properties, the properties can be categorized as,
- Residential Property
- Commercial Property
- Agricultural Property
- Movable Property
- Immovable Property
How Inheritance Laws Apply To NRIs
The Inheritance Laws that apply to NRIs depend upon their religion. Since India is a secular country, all religions have their own inheritance laws. Apart from this the inheritance laws and their application to NRIs depend highly upon the circumstances and the documentation of the property and the NRI in the documents. Further, if the property is talked about, if it is movable or immovable. Usually, the property is inherited by the NRI is usually in form of a will, intestate succession, or a gift.
Overall, the Indian Succession Act is applicable when it comes to Indian Laws about succession. Further, as per their religion, the particular inheritance law applies.
- Hindu Succession Act, 1956 - This act governs the non-testamentary or intestate inheritance for NRIs that associate themselves to be Hindus, Jains, Sikhs, and Buddhists.
- Muslim Personal Law Application Act, 1937 - This act governs the non-testamentary inheritance for NRIs that associate themselves to be Muslims.
Tax Implications For NRIs Inheriting Property In India
There are different tax implications for NRIs inheriting property in India which also depends upon the time of inheritance and use of it.
Time of Inheritance
At the time of inheritance, no tax is payable by the NRI, because the estate duty has been abolished ages ago. So neither the NRI nor the deceased have to pay any tax on inherited property in India. If the NRI is not a relative of the donor, and they are transferring the property to NRI, and the property exceeds the value of INR 50,000, in that case, the recipient would be required to include the market value of the property.
Sale of Property
If the NRI decides to sell the property, Income Tax on the sale of an inherited property in India would become applicable, and the person who buys the property would be liable to have deducted the income tax.
Earning from Property
If the NRI is making some sort of gains or earnings from the property, Income tax on inherited property in India would become applicable.
Gifting the Property
If NRI decides to gift the inherited property further to a non-relative, the recipient of the property would require to pay the tax on the market balance of the property. Furthermore, the NRI can only gift the property to either an Indian resident or an NRI.
The DTAA exception is the Double Tax Avoidance Agreement Exception. If the NRI belongs to a country that hasn’t signed the DTAA agreement with India, in that case, the NRI would be liable to pay the tax on inherited property in India
Capital Gains Scenario
If the NRI is planning to sell the property, they will be liable to pay Tax on the sale of an inherited property in India. Now, the NRI can decide and either pay long-term capital gains at 20% or they can also avail of the tax benefits under Sections 54 and 54F that would help them invest in a new residential house.
Challenges NRIs May Face While Inheriting Property In India
Compared to their Indian family, it is a bit more difficult for NRIs to inherit properties in India, and here are a few challenges that one might face:
Unable to Travel
It is not always possible to travel, so if an NRI wishes to claim their share but is unable to travel to India they can give the Power of Attorney to one of their siblings which will give that particular sibling the right to undertake the inheritance procedure on the NRI’s behalf.
At times the property that is being inherited by the NRI has some debts associated with it which can further lead to more problems, so it is advised that before making claims and accepting the property, check that the property is debt free.
Repatriation Of Inherited Property
The go-to answer for NRIs if they can do repatriation of inherited property is YES! An NRI inheriting property in India can repatriate the sale proceeds that can go up to one million dollars per year, and for this, there is no such need for approval from the RBI. This means the taxes have been paid in India for the sale of such property. But in case the amount that is remitted exceeds the bar of one million, the NRI inheriting property in India would require the approval of RBI. Here is the following information to explain it in detail,
How To Repatriate Inherited Property From India?
To repatriate the inherited property from India, you would require a non-resident ordinary account, and for the making of the account and transferring the funds, you would require the following documents,
Two copies of the certificate of information, also known as Form 15CB, have been completed and signed by a chartered accountant.
- Form 15CA (Information from Form 15CB required);
- Form A2 (Banks provide a copy of the form); and
- Application for foreign trade (Banks provide a copy of the application).
Rules And Regulations Regarding Repatriation Of Inherited Property
For repatriation purposes, an NRI inheriting property in India can only transfer up to 1 Million US Dollars in a financial year and that is after obtaining the remission from RBI. The rules are applied to the following amounts:
- The amount paid for the acquisition of the property in foreign exchange received through normal banking channels or out of funds which are in the Foreign Currency Non-Resident account.
- The foreign currency equivalent as on the date of payment, of the amount paid where such payment was made from the funds held in the Non-Resident External account for the acquisition of the property.
Tax Implications Of Repatriating Inherited Property From India
Talking about tax on inherited money in India, when one repatriates the inherited property from India, they become liable to pay the inheritance tax and other respective taxes.
Inheritance laws might seem simple at first but when it comes to an NRI inheriting property in India, there are two countries that have their own set of laws that one might need to take care of, so it is advised that rather than handling everything yourself, you should seek professional legal advice and support. The entire process of inheritance is simplified especially when there is proper documentation. Moreover, when it comes to tax implications, the problem or liabilities aren’t that huge, which is a positive for NRIs living in countries that have signed DTAA with India, and for the NRIs who live in countries that haven’t signed a DTAA with India would require further assistance.