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Navigating NRI inheritance laws in India for real estate
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Learn about the NRI inheritance laws in India
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Understand tax liability and repatriation of sale proceeds
The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of January 15, 2024.
In common parlance, inheritance or succession is the distribution of assets, upon the death of an individual, to another person or persons.
A Non-Resident Indian (NRI), can inherit immovable property in India in two ways:
- Valid Will, i.e., testamentary succession; or
- Laws of intestate succession i.e., when a person passes away without writing a valid Will and the property is inherited as per the relevant succession laws in India. The law on intestate succession is governed by succession laws applicable to the relevant community in India. For example, Hindu Succession Act, 1956, applies to Hindus, Sikhs, Jains and Buddhists. The relevant codified laws define the legal heirs based on their relationship with the deceased.
Laws governing the inheritance of immovable property in India
An NRI can inherit the property from:
An Indian resident
Any person resident outside India (NRI, Overseas Citizen of India (OCI), or foreign citizen), who had acquired such property in accordance with the provisions of the applicable foreign exchange law when the property was acquired.
In case of intestate succession, you will inherit the property as per the applicable laws. For example, broadly speaking, the property of a male Hindu who passes away intestate, (i.e., without a valid Will) devolves in the following order of priority under the Hindu Succession Act, 1956:
The relatives specified as Class-I heirs such as spouse, sons, daughters, mother, etc.;
If there is no Class I heir, then upon the relatives specified as Class-II heirs such as father, brothers, sisters, etc.;
If there are no heirs of any of the above two classes, then the property will be divided upon people related by blood or adoption wholly through the male side of the deceased. For instance, cousin from father’s side.
- Lastly, if there are no such people, then the property will devolve upon the people related by blood or adoption, not wholly through the male side of the deceased. For instance, a cousin from the mother’s side.
Types of property that NRIs can inherit
Unlike restrictions in relation to the types of property that an NRI can purchase, there are no limitations while inheriting property as an NRI. This essentially means that subject to the prevailing Foreign Exchange Management Act (FEMA) regulations, NRIs can inherit (from a resident Indian or another NRI) and hold any number of immovable properties in India including commercial, residential, agricultural including farmhouses in India.
Transferring ownership in your name post inheritance
The property inherited by an NRI will require registration with the relevant sub-registrar of assurances. In this regard, you will have to pay the necessary registration costs (as per the state-specific Registration Act) and provide the relevant registrar with the necessary documents, including:
Please note, tables are best viewed on desktops or in landscape mode on mobile phones.
| Inheritance through a Will | Inheritance through intestate succession |
|---|---|
| Death certificate of the deceased person | |
| Identification documents like passport copy, Permanent Account Number (PAN) card, birth certificate of the deceased and the person inheriting the property | |
| An original valid Will signed by the deceased. For more information in relation to making of a Will, click here. | Succession certificate obtained from the District Court Judge (within whose jurisdiction the deceased ordinarily resided at the time of the death, or, if at that time the deceased had no fixed place of residence, then District Judge, within whose jurisdiction the property of the deceased may be located) |
| A copy of the probate, if applicable. A probate is a copy of the Will that has been certified through a legal process. For more information on the legal aspects of probate, click here. | In case a family agreement has been arrived at, then a copy of the family settlement agreement |
| Original property documents like allotment letters, conveyance deed, etc | |
Do note that whether a property is inherited by you through a Will or through intestate succession:
Additional documents may be required depending upon other factors. For instance, if the property is mortgaged, the registrar might ask for the mortgage deed, No-Objection Certificate (NOC) from the financier, etc. Further, the registrar might ask for the documents to be notarised; and
You may not be required to pay stamp duty on the transfer of property through inheritance depending on the applicable state-specific Stamp Act and other notifications, circulars issued by local governments. Please reach out to a local lawyer for more details on this.
Once the requisite documents are provided and other formalities are complied with, the registrar would transfer and register the property in your name.
If you cannot travel to India, you may execute a valid Power of Attorney (PoA) in favour of a trusted person to undertake necessary formalities on your behalf.
After the transfer of ownership in your name, you can evaluate various options such as retaining the property, selling the property or giving the inherited property on rent.
Sale of inherited property
An NRI can sell the inherited property to:
Indian resident: any immovable property (including commercial, residential, agricultural including farmhouse) in India;
NRI or OCI: any immovable property other than any plantation property, agricultural land, or farmhouse in India.
Tax liability for an inherited property as an NRI
There is no tax on inheritance of property, however, any income (such as rental income) attributable to that property shall be subject to tax.
When selling immovable property, it is important to consider the capital gains tax. Capital gain tax will be long-term or short-term depending on whether the immovable property is a long-term or short-term capital asset. If you have held the property for more than 24 months, it will be considered as a long-term capital asset. Otherwise, it will be considered as a short-term capital asset. If the property has been inherited/gifted (from close relatives*), then you also need to include the period of ownership of the previous owner. Long-term capital gains generally attract lower tax rates as compared to short-term capital gains.
*Close relatives such as brother (or stepbrother), daughter, son-in-law, father (or stepfather), mother (or stepmother), member of Hindu Undivided Family (HUF), sister, son (or stepson), daughter-in-law and spouse.
How to calculate capital gains tax
The sale of immovable property is subject to capital gains tax in India. The capital gains are calculated by subtracting the below from the sale consideration:
Cost of acquisition or, in case the property is inherited/gifted, cost of acquisition to the previous owner.
Cost of improvement undertaken by the seller or in case the property is inherited/gifted, cost of improvement undertaken by the previous owner.
Expenditures incurred wholly and exclusively for the sale/transfer of such immovable property.
If the property was acquired or the cost of improvement was incurred before April 1, 2001, you have the option to use the ‘fair market value’ (the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date or as determined by the registered property valuer) not exceeding stamp duty value of the property as of April 1, 2001, or cost of acquisition and improvement, whichever is higher. If this immovable property is a long-term capital asset, then such costs will be adjusted for inflation.
Saving long term capital gain tax by making specified investments
Long-term capital gains can be saved either by investing in/constructing another residential property in India within two/three years of the sale of the first property, respectively or by investing the profits in an approved bonds or ‘capital gains exemption scheme’.
Repatriation of the sale proceeds after selling the inherited property
Broadly, the authorised dealer (bank) may allow repatriation of the sale proceeds (from the sale of immovable property other than agricultural land, farmhouse and plantation property) outside India, provided the following conditions are satisfied by you as an NRI or an OCI:
The immovable property was acquired in accordance with the provisions of the foreign exchange law in force at the time of acquisition;
The payment for the acquisition of the immovable property was paid in foreign exchange received through appropriate banking channels or out of the funds held in a Foreign Currency Non-Resident Bank (FCNR (B)) account or Non-Resident External (NRE) account; and
Repatriation of sale proceeds for residential property is restricted to a maximum of two such properties.
Depending on the circumstances prevailing at the time of sale of the immovable property in India, you may also require an approval from the Reserve Bank of India (RBI) for repatriation of sale proceeds. Also note that the authorised dealer (bank) may allow an NRI to remit up to USD 1 million per Financial Year (April-March) from NRO account. This amount is inclusive of:
The balances held in their Non-Resident Ordinary Account (NRO)
Sale proceeds of assets; or
Assets acquired in India by way of inheritance.
In case you want to remit more that USD 1 million in a Financial Year, you should seek approval of RBI by applying through your authorised dealer (bank). RBI grants approval on a case-to-case basis.
Click here to understand more about the process involved in selling the property along with repatriation of the sale proceeds.
Conclusion
NRIs are permitted to inherit and hold immovable properties in India in accordance with applicable laws. It is advisable to engage the services of a lawyer who is an expert in inheritance related regulations in India. Their advice will help you in navigating the process with due diligence, ensuring compliance with the relevant legal provisions and regulations, which keep evolving over time.
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Disclaimer:
The contents of this article/infographic are meant solely for informational purposes. The contents are generic in nature and are not intended to serve as a substitute for specific advice on any matter whatsoever. The information is subject to updation, completion and verification and the applicable norms may keep changing materially from time to time. This information is also not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to applicable laws or would subject ICICI Bank Limited/its affiliates to any licensing or registration requirements. ICICI Bank Limited/its affiliates and their representatives shall not be liable for any direct or indirect losses or liability incurred arising in connection with any decision taken by any person on the basis of this content. Please conduct your own due diligence and consult your financial advisor before making any decision. Terms and conditions of ICICI Bank and third parties apply. ICICI Bank is not responsible for third party services. Nothing contained herein shall constitute or be deemed to constitute an advice, invitation or solicitation to avail any products/ services of third parties.
