Inheritance is often not a choice…
… When a property has been bequeathed to the NRI by his /her parents or close relatives, or in other words, inherited by the NRI, he/she is responsible for it.
He/she must manage the property as he/she may deem fit, or in accordance with the wishes of those from whom he/she has inherited it. Whatever the case may be, dealing with inherited property requires being aware of the various intricacies associated with such property.
Here are some important things an NRI investor, with inherited property in India, needs to consider and act upon where necessary.
Here’s What An NRI Inheriting Property In India Needs To Remember!
1. Laws Governing An NRI’s Inheritance Of Property In India:
Although there are certain restrictions on the types of property an NRI can purchase in India, there are no such constraints when it comes to inherited property. An NRI can inherit and hold, residential as well as commercial property as well as plantations, agricultural lands and farmlands.
However, ‘inheritance’ only applies for an NRI if it is from:
- An individual resident in India
- An individual resident outside India
Additionally, the person from whom the property is inherited should have acquired the same in agreement with the FEMA regulations, applicable at the time of acquisition of such property.(1)
2. Management Of The Property Inherited By The NRI:
Similar to a property purchased by the NRI, he/she can choose to either keep the inherited property vacant or earn regular returns by renting it out. The implications of renting out an inherited property are the same as those applicable for renting out a purchased property.
3. Sale Of The Property Inherited By The NRI:
An NRI can sell the inherited property to an Indian Resident, a PIO or another NRI. However, in the case of properties such as agricultural lands, farmlands, and plantations, the NRI can sell them only to an Indian Resident and who is a citizen of India.
Additionally, if an NRI inherited the property while staying in India, prior to obtaining the NRI status, he/she is free to deal with the property through means of sale, rent, transfer or gift. (1)
4. Tax Implications For Property Inherited By The NRI:
The property inherited by an NRI does not attract any income tax. While such properties were subject to wealth tax, under The Wealth Tax Act, 1957, wealth tax was abolished in 2015.(2) However, if the property is sold, the tax implications would be the same as in the case of purchased property.
It is important to note that the purchase price for the calculation of the capital gains tax 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.(1)
Additionally, the NRI needs to check if the inherited property is subject to taxation in his/her country of residence.
5. Repatriation Of Proceeds From Sale Of Property Inherited By The NRI:
An NRI can repatriate the sale proceeds of property inherited from a person resident in India subject to the conditions mentioned below.(1) If those conditions are fulfilled, the NRI need not seek permission from the RBI.
However, if the property has been inherited by an NRI from a person resident outside India, then the NRI must seek specific permission from the RBI
- The amount of repatriation should not exceed USD 1 million per financial year.
- The NRI must produce 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
- In cases of deed of settlement made by either of his/her parents or a close relative (as defined in section 6 of the Companies Act, 1956) and the settlement taking effect on the death of the settler, the original deed of settlement and a tax clearance/No Objection Certificate from the Income-Tax Authority should be produced for the remittance.
- Where the remittance as above is made in more than one instalment, the remittance of all such instalments shall be made through the same Authorised Dealer.
The proceeds should be credited to an NRO account.
If the NRI intends to manage it from abroad, he/she cannot do it alone. He/she will need someone to help him/her decide if the inherited property should be kept vacant or rented out, along with other details such as screening and choosing the tenants, daily management and upkeep of the property (in the absence of a caretaker), legal issues related to the inherited property, etc. In other words, the NRI will need the services of a real estate portfolio manager!
If you are NRI who has recently inherited property in India and seek help to manage it, get in touch with Homzhub today!