Although there have been increased number of NRIs/PIOs investing in properties in India, not many of them inherit a property in India as compared to buying a property. In India, an NRI / PIO can inherit various types of properties such as residential, commercial, farm land, agricultural and plantation.
Whom can an NRI / PIO inherit a property from?
An NRI can inherit a property from an Indian resident as well as from a person resident outside India. However, the person from whom the property is being inherited should obtain the property in accordance with the foreign exchange law in force (FEMA regulations) that was effective at the time of buying the property. There are no restrictions on the type of a property an NRI can inherit.
Does the inheritance of property by an NRI attract tax?
An inherited property by an NRI will not attract any income tax but will be subject to wealth tax. However, the sale / rent of such a property will attract capital gains tax or income tax. As per the Wealth Tax Act, the property will be subject to wealth tax if the net value (consisting of the market value minus the loan sought to buy the property) of the person?s assets is more than 30 lakh. The term ?assets? in such a situation will be seen in a different aspect:
- In case of a single property
If an NRI possesses just one residential property in India, he will not be entitled to pay wealth tax. However, if the NRI owns more than one property in India, he will be entitled to pay wealth tax on the value of his assets exceeding Rs. 30 Lakh.
- In case if the property is rented out for more than 300 days
If the NRI has rented out his property for more than 300 days in a financial year, he will be exempted from wealth tax. Although he will be liable to pay income tax on the rental income earned.
Can an NRI / PIO sell or rent out his inherited property in India?
Yes, an NRI / PIO can both sell or rent his inherited property in India to a resident Indian, NRI or PIO. But an NRI / PIO selling the property to another NRI / PIO should get a prior approval from the RBI. Also, if an NRI has inherited an agricultural land, plantation land or a farm house, he can sell such properties to only a resident and citizen of India. However, if the NRI owned or inherited the property while staying in India prior to obtaining an NRI / PIO status, he is free to deal with the property as per his wish through means of sale, rent, transfer or gift.
What are the tax implications on the sale of such a property?
An NRI will be subject to pay tax for the gains received from the sale of the inherited property. The purchase price for calculation of capital gains will be based on the purchase price paid by the person from whom the property was inherited. In order to determine the profits as short term or long term, the date of the property purchase by the donor will be considered. As per the Income Tax Act, 1961, long term capital gains from selling of immovable property by an NRI will attract 20% tax. Besides, the NRI should file for the income returns in India in order to claim the refund for the additional amount deducted (if so).
How can an NRI / PIO repatriate the sale proceeds from the inherited property?
An NRI / PIO can repatriate the sale proceeds of an inherited property via an Indian resident, based on certain terms and conditions. He should ensure that the repatriation amount does not exceed more than USD 1 million for a financial year. Also, the NRI should mandatorily produce property paperwork that supports the inheritance. He should also provide a certificate issued by the Chartered Accountant as directed by the Central Board of Direct Taxes.
I originally was an Indian citizen, and have since acquired Canadian citizenship, and now have the OCI dual citizenship of India. My father had purchased a piece of land in my name a long while ago, and since he bought it under my name, I have to sell the land in India. How will the tax implication work on this for me? Can the amount be payable to my father, or would that amount have to be in my name and I have to pay the capital gains tax even though it was not me who purchased? Will thsi be considered inheritance and tax avoided?
Hi Krishnan
Since you are a PIO, the rules applying to NRIs will apply here also:
1) You are free to sell the land in India if it is in your name.
2) You say your father bought it in your name, but with his money. Was the plot registered in your name or your father?s?
2) In the event of a sale, consideration has to be paid to the owner and hence to you, not your father.
3) Capital gains will be applicable as the difference between the indexed cost (considering inflation) and your sale price. You can repatriate up to $US 1 million per year freely out of sale proceeds from property after due payment of capital gains tax.
4) Even if your father had purchased it in his name and then gifted it to you or it came to you through inheritance, still capital gains will be applicable taking the view that the purchase value of the property is the price at which your father bought it in that particular year.
5) Obviously if you keep it, no capital gains tax will be applicable and the question of capital gain / loss will come into the picture only when you sell.
We provide legal assistance for NRIs on matters such as sale of property, repatriation of sale proceeds, inheritance, estates and wills etc. So if you would like to seek our assistance, please mail us with full details to support@yourmaninindia.com