NRI Inheritance: What Properties Can NRIs Inherit?

Inheriting assets in India as a Non-Resident Indian (NRI) or Person of Indian Origin (PIO) could be a complex process. Understanding and navigating through the inheritance laws, legal procedures, and tax implications can be very daunting. This article is a comprehensive guide that will help you understand all key aspects of inheritance for NRI and PIOs.

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What Can An NRI Inherit?

NRIs can inherit both movable and immovable properties as per the Indian inheritance laws. The movable property includes cash, jewellery, vehicles, and financial assets. Immovable property, on the other hand, includes land, buildings, and other fixed assets such as commercial buildings, residential buildings, agricultural land, or farmhouses, which the NRI wouldn't be able to purchase directly. The inheritance of movable and immovable property is usually governed by the succession laws of the deceased religion and the location of the assets.

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Important Laws For NRI Inheritance

In India, laws governing NRI inheritance are a combination of inheritance laws and foreign exchange laws.

• Inheritance laws: NRI Inheritance laws will depend on the religion of the deceased person and location of the property. For Hindus, Sikhs, Jains, and Buddhists, the Hindu Succession Act, 1956 is applicable, whereas for Christians, Parsis, Jews, and Muslims, the Indian Succession Act, 1925 is applicable.
• Foreign Exchange Management Act (FEMA): As per the rules of FEMA, NRIs can inherit any kind of property in India without prior approval from the Reserve Bank of India (RBI), but must report the same to RBI. FEMA also governs the transfer of foreign exchange in and out of India, in case the NRI sells inherited property in India.

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Ways NRIs inherit Indian property

NRIs and OCIs can inherit Indian property in either one of the following ways:

• Testamentary succession: When a deceased person leaves a valid will specifying valid beneficiaries of the assets, then as an NRI, if your name is mentioned in the will, you can get the property in your name. If there is more than one legal heir, you will need a no-objection certificate from all the concerned parties to get the property title.
• Intestate succession: This happens when the deceased hasn’t left any will. In such cases, the property is distributed to all legal heirs as per the concerned inheritance laws. To get the property in your name, you must submit all the required documents, including the birth certificate, death certificate, purchase deed, registration documents, and other required documents to prove you are a legal heir.

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What Can NRI Do With Inheritance?

NRIs who inherit an asset in India can do any of the following with the property.

• Retain ownership: You can retain the ownership of the inherited property in your name and, if needed, appoint a power of attorney (PoA) or manager who can handle the day-to-day affairs of the asset.
• Rent out: In case of physical assets, you can rent them out to earn rental income in India. This income can be repatriated as per FEMA regulations.
• Sell the asset: You can sell the asset in case you do not want to hold the ownership of it. However, sales are governed by the rules of FEMA.
• Gift or donate: The inherited asset can either be gifted or donated to charitable organizations. However, it is important to be aware of the specific rules and tax implications for gifting or donating the asset.

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All About Form 15CA and 15CB

Form 15CA and 15CB are crucial documents when dealing with inherited assets in India. They serve as a certification from a chartered accountant (CA) that verifies your tax status and the nature of the transaction.

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Form 15CB

Form 15CB is used when you sell an inherited asset in India. It certifies that you have paid or will pay the applicable capital gain tax in India upon the sale of the inherited asset. For tax purposes, the CA will certify that you (the NRI) are not a resident of India. You will or have already paid the capital gain tax in India, and you are not liable to pay any other tax in India. Form 15CB is required when the remittance amount exceeds INR 5 Lakhs per financial year.

Form 15CA

Form 15CA, on the other hand, can be used for various financial transactions involving NRIs. The form is used to receive rental income from inherited assets in India, obtain loans in India, remit funds, or invest funds in India. The CA will give Form 15CA certifying that you (the NRI) are not a resident of India for tax purposes and are not subject to tax in India for a specific transaction.

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Tax Implications For Inherited Property By NRI

It is important to consider potential tax implications when, as an NRI, you inherit assets in India. The following are some of the taxes that could be levied under different circumstances.

• Capital gains tax: Capital gains tax is levied if you sell the inherited assets in India. If the property is held by you for less than 24 months, then a short-term capital gains tax is levied, which is equivalent to your income tax slab rate. However, if you hold the property for more than 24 months and then sell it, then a long-term capital gains tax of 20.8% is levied.
• Tax on rental income: In case you do not sell the property, you inherit it. You give it out on lease and earn rental income, and then you are liable to pay the tax on the income earned. The tax rate will depend on your residency status in that financial year.
• Local taxes: Municipal taxes or property taxes are levied on all residential and commercial properties by the local authorities. These must be paid even on inherited properties.

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Remittance For NRI Inheritance

When you sell the inherited asset in India, you are allowed to repatriate the sale proceeds back to your country of residence, subject to the conditions of the FEMA. Upon selling the assets, you must deposit the sale proceeds into your Non-Resident Ordinary (NRO) account. You can remit or repatriate the sale proceeds up to USD 1 million per financial year. If the remittance amount is greater than USD 1 million per financial year, then prior approval from RBI is required. Before repatriating the proceeds, it is important that you submit Form 15CA and 15CB to the respective bank. Moreover, you must also have proper documentation, including proof of inheritance, for easy remittance.

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Conclusion

As per the rules of FEMA, NRIs can inherit property in India. They can either retain the ownership or sell the asset and repatriate the sale proceeds back to their country of residence. However, it is important to understand the inheritance laws and the tax implications of inheritance. Although the government doesn't charge any inheritance tax for NRIs, it is important that you are aware of the different taxes you will have to pay if you generate passive income from it or sell it.

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Frequently Asked Questions

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What are the legal steps for an NRI to claim inherited property in India?

Claiming inherited property in India involves a series of steps, such as obtaining the succession certificate and the no objection certificate and registering the property. The succession certificate can be obtained from the court, which is further dependent on the religion of the deceased and the location of the property. In certain cases, when there is more than one legal heir, a no-objection certificate is also required. If there is a valid will in place, then a succession certificate is not necessary. With the succession and no objection certificate in place, registering the property in your name will be an easy process.

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How can an NRI transfer inherited property in India to their name?

To transfer the inherited property in your name, as an NRI, you must have a valid will. The will must be registered with the district registrar to get a certified copy of the will. Once the will confirms that you are the legal heir to the property, it can be registered in your name. 

In case there is no valid will in place, then you must obtain a succession certificate from the court and a no objection certificate from any other legal heirs, and then you can get the property registered in your name.

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Can an NRI sell inherited property in India?

Yes, NRIs can sell inherited property in India without prior permission from the RBI. However, if you are selling to another NRI, then you will require prior approval from the RBI.

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What documentation is required for NRIs to inherit property in India?

Following are the documents required by NRIs to inherit property in India.

• A valid will
• Succession certificate in case there is no valid will
• Death certificate of the deceased
• Identification documents such as PAN Card, Passport, and birth certificate of the deceased and the person inheriting the asset
• Original purchase deed and registration documents in case of immovable property
• Encumbrance certificate in case of immovable property

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Are there any restrictions on NRIs inheriting agricultural land in India?

As per the regulations of FEMA, NRIs can inherit agricultural land in India, which they cannot purchase otherwise. Some states have restrictions on non-agriculturalists owning agricultural lands. Once the agricultural land is inherited, NRIs must use it for agricultural practices only. And if they wish to sell the land, it must be sold to Indian residents only.