NRIs' Guide to Dealing With Inherited Property in India

From the archive: first published September 15, 2011, based on a Times of India report from the same period. The rules below were current in 2011 and several have changed since — the Wealth Tax Act, for example, was abolished in 2016. Treat this as background reading and confirm everything with a chartered accountant before acting.

Buying property in India is a decision most NRIs make after weighing the tax and regulatory implications. Inheritance is different — it usually isn't a choice. For first-generation NRIs and PIOs whose parents bequeath them Indian property, here are the questions that mattered most in 2011.

Can an NRI inherit property in India?

Yes. A Non-Resident Indian, a Person of Indian Origin, and even a foreign national of non-Indian origin can inherit and hold property in India — including residential and commercial property, agricultural land, plantation land, and farmhouses.

From whom can the property be inherited?

The property can be inherited from a person resident in India or from a person resident outside India. One condition: the person who left the property should have acquired it in accordance with the foreign exchange law in force at the time of acquisition — the FEMA regulations applicable then.

Is any tax payable at the time of inheritance?

No income tax was payable at the time of inheriting property. There was, however, a wealth-tax angle: under the Wealth Tax Act then in force, tax could apply if the net value of specified assets exceeded Rs 30 lakh. A single residential house was exempt under Section 5 of that Act, and rented-out property had further carve-outs. (The Wealth Tax Act was abolished in 2016, so this no longer applies — but it was a live question in 2011.)

Can an NRI rent out inherited property?

Yes. The implications were the same as for renting out purchased property.

Can an NRI sell inherited property?

Yes, with conditions on who can buy. An NRI could sell to a person resident in India, another NRI, or a PIO. A PIO selling to another PIO needed prior RBI approval. Agricultural land, plantation land, and farmhouses held by an NRI could be sold only to a person resident in India who was a citizen of India.

Can the sale proceeds be repatriated?

NRIs and PIOs had general permission to repatriate sale proceeds of property inherited from a person resident in India, up to USD 1 million per financial year, subject to documentary evidence of the inheritance and a chartered accountant's certificate in the prescribed format. Property inherited from a person resident outside India required specific RBI permission.

What are the tax implications of selling?

The tax treatment was the same as for purchased property, with two important inheritance rules: the cost of acquisition for capital-gains purposes was the price paid by the person who bequeathed the property, and the holding period (short-term vs long-term) was computed from the date of purchase by that person — not from the date of inheritance.

What about tax in the country of residence?

NRIs also needed to look at the tax rules of the country they lived in. In the US, for example, estate-tax implications could apply. Local advice was essential.

---

This is general information, not tax advice. Indian property and foreign-exchange rules change frequently — always confirm with a qualified professional before making decisions.