Any Non Resident Indian (NRI), Person of Indian origin (PIO) or even a foreign national of non-Indian origin can inherit and hold property in India. However, for transfer/sell or holding of the said property, one has to comply with exchange control regulation in India.
Now the question may come, from whom the property can be inherited? Answer is quite straight as per the guideline i.e. NRI, PIO or foreign national can inherit property from a person resident in India, a person resident outside India. However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange law in force or FEMA regulations, applicable at the time of acquisition of the property.
You might know that an NRI or PIO cannot acquire by way of purchase of agricultural land/ plantation property / farm house, but did you know such NRIs or PIOs can very well acquire any immovable property in India by way of inheritance? Yes! You got it right. NRIs, PIOs can inherit Indian property owned by person resident in India or a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force or FEMA regulations, at the time of acquisition of the property. But what an NRI or PIO should know about such inheritance of properties? Let’s find out.
Is there any Tax Payable in India at the time of Inheriting the Property?
No! There is no tax liabilities at the time of inheriting property in India. However, the property may be subject to wealth tax. According to the Wealth Tax Act 1957, tax is payable if the net value (market value minus any loans taken to finance the assets) of the assets of an individual exceeds Rs. 30Lacs. Such wealth tax will not be applicable if the inherited property is the only one that the Non Resident owns in the country. Under section 5 of the Wealth Tax Act, for this type of avoidance, property owned by a Non Resident outside the country will not be counted.
Can an NRI or PIO sell inherited property?
Why not? An NRI can sell inherited property to a person resident in India, an NRI or a PIO. Even a PIO can sell property in India to a person resident in India or an NRI. In case a PIO wants to sell to another PIO, he will need to get prior approval from RBI. Point to be noted here; an NRI holding agricultural land, plantation land or farm house may sell these properties only to a person resident in India and who is a citizen of India.
A PIO can sell/transfer any immovable property in India (other than agricultural land / farm house / plantation property) by way of sale to a person resident in India. He may transfer agricultural land / farm house / plantation property in India, by way of gift or sale to a person resident in India, who is a citizen of India. He may also transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India, who is a citizen of India or to a Person of Indian Origin resident outside India.
What are the tax implications of sale of inherited property?
A Non Resident is liable to pay tax on the gains out of sell of inherited properties. The purchase price for calculation of capital gains will be the purchase price paid by the person who bequeathed the property. The holding period for determining if the gains are long term or short term will be computed from the date of purchase by the person who bequeathed the property.
Selling of immovable property by a Non Resident Indian is taxable under the income tax under Chapter XII-A of the Income Tax Act, more specifically under section 115E of the Income Tax Act 1961. The rate of tax prescribed and in force is 20%. Further Non Resident needs to file his/her return of income in India to claim the refund of excess amount deducted if any.
How to repatriate the sale proceeds from the Inherited Property?
This is not so difficult, but it needs to be followed by some procedures as guided by RBI. NRIs/PIOs can repatriate Sale/maturity proceeds of assets acquired by them by way of inheritance after meeting or providing for all statutory, taxation and other liabilities of the estate. There must be documentary evidence in support of the inheritance and an undertaking and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes.
Few points to be noted and TIPs for better planning
As a non-resident one need to be cautious with various rules & regulation, taxation of handling/dealing with such inherited properties.
Avoid Wealth Tax if any: If the property is subject to wealth tax, then this can be avoided by simply putting it on a rent. However, it must be ensured that the property is rented out for more than 300 days in a year.
Income from Inherited Property is Taxable: Though inherited property will not be taxed in the hands of non-resident, but one needs to know any income from such property will be taxed if any gains generated out of sell (whether short term or long term gains). Even rental income is subject to applicable TDS.
Standard Deduction u/s 24a is allowed: While computing income from house property, standard deduction can be claimed to lower the tax burden. Even any amount paid with respect to Municipal Tax is allowed to be deducted from the gross annual value of the house property.