All About Real Estate Assets Inheritance by Non Resident Indians

Real Estate Inheritance by NRIsA non-resident Indian (NRI) is permitted to invest in India so long as he or she complies with the Foreign Exchange Management Act of 1999 (FEMA). 

An NRI can inherit any residential or commercial immovable property in India, as well as agricultural land or a farmstead (which they cannot otherwise purchase) from a person residing in India or outside India. However, it must be remembered that the inherited property must have been acquired in accordance with the applicable foreign exchange regulations at the time of inheritance.

Reserve Bank of India (RBI) approval is required if a property is inherited by a citizen of a foreign state who resides outside India. In addition, if an Indian parent dies intestate and leaves these assets without a will, the NRI child will be required to obtain a succession certificate from the Indian courts. This will necessitate the submittal of various documents, including the decedent's death certificate and the successor's birth certificate, among others.

How can a non-resident alien transfer ownership of inherited property to his name?It is possible to inherit through a will or intestate. In Mumbai, Kolkata, and Chennai, obtaining a probate is required. Even in other centres, obtaining probate for a clear and marketable title in the future is desirable. The probate must be filed with the stamp authorities and then updated in the land records, as is customary.

In the event of an intestate succession, a succession certificate or letter of administration may be required. In the case of a co-op property, one must submit the probate, succession certificate, or letter of administration, as applicable, in order to transfer the property to the legatee's name.

What are the regulations regarding the inheritance of real estate?

The inheritance is governed by the personal laws of the deceased from whom the NRI inherits the property and the provisions of the Foreign Exchange Management Act of 1999 (FEMA). Additionally, there are no tax consequences if an NRI inherits property in India. Consequently, neither the representative of the deceased nor the inheritor must pay inheritance tax. However, if the property is rented during the NRI's continued ownership, the NRI is required to pay taxes under the Income Tax Act. Alternatively, no tax will be imposed if the NRI maintains the property uninhabited and utilises it only during his stay in India. However, if an NRI possesses multiple properties, only 'one' can be shown as self-occupied, and taxes will be assessed on the other properties. Even if the other property or properties are vacant, income tax will be assessed based on the property's notional rent.

Can a non-resident Indian sell an inheritance?

There is no provision in the Income Tax Act of 1961 prohibiting a nonresident alien from selling inherited property. With the exception of agricultural land, plantation property, and farmhouses, NRIs may sell inherited property to an Indian resident without permission from the RBI.

However, transferring an inherited asset to a non-Indian resident requires prior approval from the Reserve Bank of India (RBI) and the incorporation of foreign transactions. When selling inherited property to an Indian resident, a non-resident alien must use indexation to determine the capital gains if the property was acquired prior to April 1, 2001. For assets acquired after April 1, 2001, the purchase price will be considered and taxed at a rate of 20%.

A non-resident Indian must also be aware of the restrictions on the repatriation of inherited property sale proceeds. 

Regarding residential property, the sale proceeds of no more than two properties may be repatriated. In addition, he must remember to submit the confirmation of inheritance, and the total repatriation amount cannot exceed $1,000,000 USD per fiscal year.

In the event of a property transfer by a non-resident alien, the purchaser is required by Section 195 of the Income Tax Act to deduct income tax at the applicable rates from the taxable amount of capital gains.