Law on Inheritance of Property for NRIs in India

Law on Inheritance of Property for NRIs in India


In India, dealing with real estate can be extremely distress especially for a Non Resident Indian (NRI) since transfer of property laws work with the provisions of the Foreign Exchange Management (FEMA) , 1999 and the income tax act , 1961 are both applicable while inheriting an immovable property and its continued ownership by NRIs or even PIOs/OCIs . The individual who receive the property assets is known as the inheritor and the procedure by which it had been done is called as inheritance.

An NRI is just like any other citizen who can inherit any type of immovable property in India whether that property is residential or not and they also have a legal right to inherit agricultural lands as well as farmhouses, which otherwise is prohibited by way of purchase under Indian transfer of property laws. They also have a right to inherit any property from their respective families as well as their relatives. Besides this, NRI have the right to inherit property from another NRI as well. It is essential to remember that the individual from whom the NRI inherits the property must have obtained the property being entrust, in accordance with the provision of the prevalent law relating to foreign exchange, established at the time of purpose. Therefore, if the property was come by without acquiring any permission from the RBI then such property cannot be inherited by the NRI without acquiring any prior permission from RBI [Reserve bank of India].

No tax is charged at the time of inheritance of property. But, if the value of the property is in exceed of Rs. 30 lakhs, after subject to some various deductions like home loans and many more , a wealth tax would have to be paid. There are several legal means by which the tax can be avoided. It starts out with the Renting out the property which is simple and effective way to avoid wealth tax. However, it must be ensured that the property which is rented out for about 300 days in a year. If the inherited property is the only one that the NRI owns in the country then only wealth tax is not applicable. For this type of avoidance, property owned by a Non Resident India outside the country will not be counted. The exemption for this is governed by Section 5 of the Wealth Tax Act.

What can an NRI do with the property?

There are several options for the Non Resident Indian who resides abroad to make the asset in the home country work in his/ her approval.
Firstly, the property can be rented out. This is a perfect way to make money from the inheritance. There are no special rules that should be applicable here.
secondly selling an inherited property is also an option that many are considering. This is mostly because NRIs do not plan to return to their home country and see it fit to dispose of this asset.

Selling of an inherited property by an NRI is governed by a set of rules, the details of which are beyond the scope of this article. However, the one thing that must be kept in mind is the fact that NRIs can sell their property to any person residing in the country or to an NRI. It can also be sold to a person of Indian origin not residing in India. One point to note in this respect is that agricultural land or a farmhouse that is inherited can be sold only to a citizen of India residing in the country.

 What are the requisite documents needed to transfer title of inherited property in India?

The following are the essential documents that are must to execute transfer of title in an inherited property in India:
*A registered Will: According to Indian law, it is not mandatory for a Will to be registered, it can just be written on a plain piece of paper.

However, registration of a document makes it a valid document in the eyes of law that may or may not have to be presented in a court. Therefore, it is highly recommended to get every Will registered. Besides, the person can always keep amend a registered Will.

*A succession certificate: In case there is no Will then during its absence, the legal heirs will be required to obtain a Succession certificate from the court.

The legal heirs will have to present the following documents, for instance,

  1. The death certificate of the deceased person to prove the exact time of the demise,
  2. Details of the residence of the deceased
  3. Details of the property in question
  4. Birth certificate of the legal heirs to disclose their details,
  5. Copy of the ration card of the legal heirs,
  6. Bank statement of the legal heirs etc.
  7. Absence of any obstruction towards the grant of the succession certificate
These documents are mandatory to prove that the legal heirs are indeed the rightful successors of the property in question.
  • Original property purchase deed as well as the registration documents: In case of an old property, the original property purchase deed might not be available.
    In such a situation, the inheritor would be required to obtain certified copies of the title deed from the jurisdictional Registrar’s office under whose jurisdiction the said property is present.
  • Encumbrance certificate: An encumbrance certificate is a compulsory document applicable in transactions of property as a proof of free ownership/ title. Besides this, an encumbrance certificate registers and reviews all the transactions that occur in connection with an immovable property be it a sale, gift, lease, mortgage, partition, release, etc. The encumbrance certificate for property can be acquired from the Sub-Registrar’s office where the property in question has been registered.
  • Khata: A Khata is primarily a revenue document (official record), describing the evaluation of a property, indicating entire details of the property such as its size, built up area, location and so on in the records of the Municipality/ Corporation for the objective of payment of property tax.A khata further contains additional details like the name of the owner of the property, type of property, details of taxes paid/ to be payable etc. against the property. A khata is fundamentally a piece of evidence of who owns as well as possesses the said property.
    Apart from this, a khata is also a type of identification of the person who is essentially liable to pay property tax for the property concerned. Additionally, a khata is one of the key documents that are required when the owner of the property needs a trade license or a building licence or a loan from a bank or any other financial institution.

An NRI and a PIO can purchase as many as residential as well as commercial properties in India, but when the investment is to be done on an agricultural land, farmhouse or a plantation area, they can only be inherited or gifted to the NRI. If you are selling the property within 3 years of purchase, then it is a short-term capital gain and the earnings are taxable, but if you sell it after 3 years of its purchase then it is long-term capital gain and the concerned person has the option of reducing the capital gains tax by investing in any other property. The foreign exchange then received can be repatriated through various channels like banking in accordance with the Foreign Exchange Management Act, 1999.




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