Important Legalities for NRIs inheriting Real Estate in India

September 19, 2018

If you’re an NRI selling property in India that was inherited by you from your ancestors, there are certain rules and regulations that you must know about while doing so.

There are fundamental differences in the taxation for NRIs and you will find a lot of things uncommon from usual laws. Real Estate transactions involve hefty amount of money and hence, they should be done with the right structure in mind.

Factors such as laws of inheritance, taxes to be imposed on inherited property, rights of inheritance, permissible properties by RBI etc come into play and violating any of the laws can result in messed up real estate consequences that any NRI would want to avoid.

As Spacio Realtors are NRI Real Estate Agents, we would like to shed some light on the process and the legalities of inherited properties by NRIs.

What kind of Properties can be inherited by NRIs?

Although there are restrictions on buying certain categories of real estate in India such as agricultural or farm land for NRIs, they are free to inherit all kinds of immovable property assets.

Inheritance is allowed from anyone in the family of the NRI or even another NRI to whom the property belongs. Person of Indian Origin (PIO) can allot properties to other NRIs based on the nature of the transaction. There are certain rules that govern this kind of inheritance.

Condition of Inheritance

Only those properties, residential or commercial, are inheritable that properly warrant the inheritance of property as per the laws that govern the case of inheritance by an NRI.

Obviously, the relevance of such laws is subjected to the time the inheritance statement or will was written. If certain conditions as depicted in these laws were not met (at the time of allotment of property), the property can’t be inherited.

The same case applies to properties that are inherited from other NRIs or PIOs by an NRI or PIO.

More information on these laws and FAQs are given at Ministry of External Affairs.

Taxation for NRI When The Property is Legally Inherited  

As such there are no taxes imposed on an NRI when they receive an inherited property from someone. Neither does the transferrer, dead or alive, has any such tax obligation to fulfill to make the transaction valid.

There is a clause however, that if the property is reassigned or the rights are transferred to another person by the NRI who originally inherited the property, the recipient is mandated to disclose the property as income. This condition is valid only when the property exceed 50,000 INR in value, which we suppose almost every property will.

Taxation for NRI when The Property is Retained By the Heir During Their Lifetime 

If the NRI decides to keep the inherited property to themselves, there are certain other conditions that come into play.

  • If the NRI status is retained by the individual based on income tax laws applicable to the person, the property will be taxable by the law.
  • If the NRI doesn’t use the property for any kind of monetary gains and only keeps it for occupying it while stay in India, then there is no tax implication.
  • If the same NRI owns more than one properties in India, including the one inherited from someone, then only one of these properties qualifies for exemption of taxes. Tax Return Filing for NRI will be applicable for other properties as only one can be used for stay.
  • The other properties, in case of multiple properties owned by the NRI, are taxed on the basis of rental income value of those properties.
  • Tax Return Filing for NRI also becomes necessary if the combined income of the NRI in India exceeds the basic taxable bracket, including that earned commercialization of inherited property.

Tax Applications while the Sale of Property by NRI that was Inherited  

There are three basic conditions that operate when an NRI wants to sell the property that was inherited.

  1. An NRI is free to sell the inherited property to any citizen of India.
  2. An NRI can also sell the inherited property to another NRI or PIO but this can only be done after prior permission from RBI.
  3. The laws and rights regarding the sale, rent or gift of property don’t vary if the person was not an NRI when the property was inherited by him.  

Implications when the NRI wants to Gift the Inherited Property to Someone

The NRI holds full rights to gift the property to someone in the family without having to go through any tax implications.

In case, the recipient of the property is not a family member or a non-relative, then they have to pay property tax on the net evaluation of the property.

NRIs are not allowed to gift the property to anyone who is neither a citizen of India and nor an NRI or PIO.

Tax Laws for NRI Corresponding to Income from Inherited Property

There are tax implications on both the seller of inherited property – the NRI and purchaser but the same laws don’t govern the taxes imposed.

When the sale is made by the NRI of an inherited property, then the purchaser has to file income tax according to income tax on capital gains. (Section 195 of ITA)

If the time when the NRI inherited the property and the owner bought the property exceeds 2 years in calculation, the NRI will be taxed based on long term capital gains.

In case, the inheritance has taken place after April 2001, the value of property paid by an preceding owner of the property will be taken for computation.

Alternatively, if the property was inherited before April 2001, the value of property, can be computed based on its value as on April 2001 for taxation.

Tax Percentage for Long Term Gain for The NRI

The NRI is supposed to pay 20 percent per annum is they decide to pay the taxes under long term capital gain.

They also have the option to invest in any of the allowed government institutions in the forms of bonds, given the value of investment is equal to 50 lakhs inside a year.

Get Help With Sale of Inherited Property in India from NRI Real Estate Agents

 If the taxing system and Tax laws for NRIs are a bit overwhelming for you or you want a property expert to help you with the sale of inherited property, you can obtain the services of Spacio Realtors.

We’re ISO 9001 certified Real Estate agents in India who offer a great deal of trust in dealing with NRI property.

There are several benefits of going with us in such kind of transaction as we can provide expert guidance on the whole process, mobilize resources for the deal and help you invest your money precisely for the best tax benefits.

These things make the transaction smoother and retain income benefits for the NRIs.

Conclusion

Inheriting property from relatives in India or other NRIs is legally possible for NRIs but selling it comes with added tax conditions. Gifting an inherited property or selling it out for capital gains must be done with legal compliance in order to make the best out of the assets.  



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