If you move abroad, your right to inherit property in India is not automatically taken away. However, the rules can differ depending on whether the inheritance involves movable assets, such as bank accounts, stocks and jewellery or immovable property, such as land or real estate.
A person may move temporarily or permanently to another country for various reasons, such as employment, marriage or education. When it comes to inheriting property located within Indian borders, non-resident Indians (NRIs) are governed by the country’s succession laws.
Ancestral vs self-acquired property
If an NRI inherits immovable property, let’s say a flat in a housing society, the ownership transfer process depends on whether the property is self-acquired or ancestral and has not been divided for the last four generations.
Self-acquired property can generally be transferred through a valid will, whereas ancestral property is subject to succession laws that may be influenced by religious beliefs and local customs, according to a report by Tax2win.
NRIs, like other Indian citizens, have the legal right to inherit various forms of immovable property in India. This includes residential properties, commercial properties, agricultural land and farmhouses.
NRI inheritance conditions for agricultural land
While NRIs are prohibited from purchasing agricultural land, they are allowed to inherit it from their parents or other family members (in case there is a will). Though there is a caveat: upon inheriting agricultural land, an NRI can only sell it to an Indian resident.
Property inheritance by NRIs is governed by the Foreign Exchange Management Act (FEMA) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.
Tax for inheriting property in India
An NRI does not have to pay any tax on inheriting a property. However, any income generated from that property, such as rental income, shall be subject to taxation in the relevant assessment year.
Repatriation of property sale proceeds by NRIs
Now, suppose an NRI decides to sell the property a few years after inheriting it. In such cases, a person residing outside India who acquired immovable property in India by inheritance or while a resident of India cannot repatriate the sale proceeds without prior permission from the Reserve Bank of India (RBI).
NRIs can repatriate up to $1 million per financial year without prior RBI approval if the property was acquired:
- Through inheritance from an Indian resident
- From a person who retired in India
- From a spouse resident in India who inherited the property
When can an NRI repatriate above $1 million
Repatriation exceeding $1 million in a financial year requires mandatory prior approval from the RBI. Regardless of the amount, transferring sale proceeds to your foreign bank account is subject to certain conditions.
The NRI must ensure that the property has been acquired in accordance with FEMA provisions. Additionally, the acquisition payment must have been made through permissible payment modes.
For residential properties, an NRI can repatriate the sale proceeds of up to two properties, according to the report.
NRIs must submit Forms 15CA and 15CB to complete the repatriation process. Form 15CB must be prepared, signed and submitted by a chartered accountant.
