The transfer of ownership of inherited property is not very complicated if you are an ordinary citizen of India. However, the rules are different when it comes to Indians settled abroad. FEMA ( Foreign Exchange Management Act), 1999 and Income Tax Act, 1961 needs to be looked into apart from Transfer of property Laws. These regulation regulates the inheritance of property in India by non-resident Indians (NRIs) and OCI ( Oversees Citizens of India ).
Inheritance can be through intestate succession or by bequeathing by way of a will. If the owner of the property dies intestate (without a Will), the NRI legal heir will have to run around to obtain a succession certificate from a court. The legal procedures will not be easy for a person settled abroad. Writing an unambiguous and legally valid Will is recommended because it smoothens the process for the heirs.
Types of Property that can be Inherited :
A non-resident Indians (NRI) and OCI (Oversees Citizens of India) can inherit a property from a resident or from any person who has acquired it under laws in force (i.e) he / she can inherit from another NRI /OCI subject to that the property was purchased as per the prevailing regulation.
So, if the property in question was acquired without obtaining permission from the Reserve Bank of India, when the permission was required to be obtained, such property cannot be inherited by the NRI or PIO, without specific permission of the RBI.
A NRI/ OCI cannot acquire or take it in the form of gift any agricultural land or a farm house however A non-resident Indian (NRI) or Oversees citizens of INDIA (OCI ) but can inherit any immovable property in India, whether it is residential or commercial, agricultural land or a farmhouse. Inheritance of a property can be even from a relative.
Tax on capital Gains and TDS:
If an NRI wants to sell the inherited property that was acquired more than two years ago, he will be taxed 20% on long-term gains after indexation. If property was acquired less than two years ago, the gains will be added to the income of the individual and taxed at normal rates. Please note that the date of purchase and price paid by the original owner will be considered for calculating these gains.
When an NRI sells property, the buyer is mandated to deduct TDS and deposit the amount with the government, on behalf of the seller. TDS will be 20% in case the property is sold after two years of purchase and 30% in case it is sold within two years. If no tax is payable, the TDS can be claimed as a refund by filing income tax return.
Repatriating sale proceeds from India
a) Repatriation up to USD 1 million per financial year is allowed, along with other assets under (Foreign Exchange Management (Remittance of Assets) Regulations, 2016) for NRIs/ PIOs and a foreign citizen (except Nepal/ Bhutan/ PIO) who has (i) inherited from a person referred to in section 6(5) of FEMA.
(b) NRIs/ PIOs can remit the sale proceeds of immovable property (other than agricultural land/ farm house/ plantation property) in India subject to the following conditions:
- The immovable property was acquired in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2018;
- The amount for acquisition of the property was paid in foreign exchange received through banking channels or out of the funds held in foreign currency non-resident account or out of the funds held in non-resident external account;
- In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
C) if a foreign citizen wants to repatriate the amount upon sale of the property, approval from RBI is mandate.