Can A Foreign Citizen Inherit A Property In India? What’s The Inheritance Procedure Concerning NRI’s Property In India?
Who can inherit property
Indian citizens can inherit properties in India without any restrictions. However, when we talk about foreign citizens and Indian citizens living abroad, the situation is not the same. To understand the law regarding inheritance of such persons, we need to understand the following terms:
- Foreigner: The term foreigner has been defined in the Foreigners Act, 1946 as ‘a person who is not a citizen of India’.
- NRI: In simple terms, Non-Resident Indian (“NRI”) can be defined, as an Indian citizen who has relocated to another country, which is no longer ‘resident’ in India. More clarity regarding this can be found in the Income-tax Act, 1961, which does not directly define NRI but defines who can be considered as a resident in Section 6. Therefore, interpreting the section, the following criteria can be laid down for someone to be considered as NRI:
- A person who has stayed less than 182 days in the current financial year in India; or
- A person who has stayed in India for less 365 days in the preceding four years and has stayed less than 60 days in that current financial year.
If a person fulfils even one of the above-mentioned conditions, he shall be regarded as a ‘non-resident.’
FEMA defines a person resident in India as
a person residing in India for more than one hundred and eighty-two days during the preceding financial year but does not include:
- (A) a person who has gone out of India or who stays outside India, in either case—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(2) any person or body corporate registered or incorporated in India,
(3) an office, branch or agency in India owned or controlled by a person resident outside India,
(4) an office, branch or agency outside India owned or controlled by a person resident in India;
Foreign Exchange Management Act, 1999 uses the term “person resident outside India” for NRIs and defines it as a person who is not resident in India.
- PIO: The Ministry of External Affairs defines Person of Indian Origin (PIO) as a foreign citizen (except a national of Pakistan, Afghanistan Bangladesh, China, Iran, Bhutan, Sri Lanka, and Nepal):
- Who at any time held an Indian passport; or
- Either of their parents/ grandparents/ great grandparents were born and permanently resident in India as defined in Government of India Act, 1935 and other territories that became part of India thereafter provided neither was at any time a citizen of any of the aforesaid countries ( as referred above); or
- Who is a spouse of a citizen of India or a PIO
The economic, financial, and educational benefits given to them are usually at parity with NRIs.
Who can they inherit from
NRIs, PIO, and even foreign citizens can inherit any type of property, including movable and immovable property, i.e. commercial, agricultural, and residential. It is pertinent to note that NRI cannot acquire agricultural land, farmhouse, and plantation property in India, but they can inherit the same subject to certain restrictions. They can also inherit properties from other NRIs and PIOs if certain conditions are fulfilled. Therefore, they can inherit property from two categories of people:
Any person resident in India; or
- A person resident outside India
One of the things required to enable NRIs to inherit the property is that the property, at the time of the purchase, should be in compliance with the relevant laws. That is the person bequeathing the property should have complied with the Foreign Exchange Management Act (“FEMA”) Regulations or any other foreign exchange law in force at the time of acquisition of the property in question. Non-compliance with the same can result in non-inheritance of the property.
In what ways can they inherit the property?
As a general rule, people, including NRIs, can inherit a property in the following ways:
- Will: One of the ways that NRIs can inherit properties in India is through a Will. NRIs themselves can transfer the property to other NRIs by making through a Will. However, in the said circumstance, the permission of RBI will be required.
- Intestate: If a person dies intestate, i.e. without a Will, then the inheritance process can get a little difficult. The relevant provision of the Hindu Succession Act, 1956 and shall apply. An NRI would have to apply for a succession certificate to the Courts. For this several documents including the death certificate of the relative, birth certificate, purchase deed, registration documents, bank documents, etc. have to be produced to prove that you are the rightful heir to the property.
- Gift: An Indian resident can gift a property to an NRI residing outside India. The same shall not be taxable. However, there is one restriction. Agricultural land and farmhouse cannot be gifted to a person residing outside India. Therefore, NRIs cannot receive agricultural land as a gift.
No tax is payable in by NRIs, PIOs, or foreign citizens at the time of inheritance. Previously, Wealth Tax would have been levied depending on the price of the estate. However, since the same has been abolished, tax will not be levied on the inheritance of a property per se. However, if the NRI decides to sell the property or accrues some kind of income from it, the question of Income Tax arises.
The following options are available to NRIs when they inherit property
- Continued ownership: NRIs can decide to keep the property. As mentioned above, no tax shall be payable at the instance of inheritance. If NRI decides to leave the property unoccupied for occupational purposes, then also there would be no tax implications. However if he’s/she owns more than one house, including the rented property, then he will have to pay tax on the same. That is he/she will have to decide to keep one property as self-occupied and furnish estimated rental income, with regards to the other unoccupied properties. The rent would be based on the estimated rent that the property would have furnished if put up in the market.
- Sale or gift: If the NRI decides to sell his property to another NRI he will have to take permission from the RBI. No such limitation is there when it comes to selling the property to an Indian resident. If NRI decides to sell any agricultural land, it can only be sold to Indian residents. If he sells the property, he will be subject to Income Tax Act, 1961 (“IT Act”). He will be subject to 20% tax, unless he reinvests the same in a residential house as per Section 54 and 54F of the IT Act. A NRI may also be subject to tax in his home country if the countries have not signed a Double Tax Avoidance Agreement (“DTAA”). Currently, India has DTAA with 88 countries, including the US, UK, China, UAE, Singapore, etc.
A foreign national can sell his property in India to an Indian resident, NRI or PIO with the prior permission of RBI. Even a PIO can sell his property in India. However, prior permission of RBI is required to make such a sale to another PIO.
If NRI decides to gift the property inherited, he may do so. However, it is pertinent to note that agricultural land cannot be gifted. If an NRI, who is not a relative, receives property as a gift from another NRI the same will be subject to tax in India based on the market value of the property.
- Repatriation: NRI can repatriate, i.e. send money from the sale proceeds outside India. Permission of RBI will be required if the sale proceeds exceed 1 million USD. The following restrictions have been put on the repatriation of sale proceeds of inherited property:
The immovable property must have been acquired in accordance with the provisions of the FEMA Regulations or foreign exchange law in force at the time of acquisition.
The repatriated amount should not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of fund held in Foreign currency Non-Resident Account or (b) the foreign currency equivalent as on the date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External account for the acquisition of the property.
The repatriation of sale proceeds is restricted to not more than two such properties in the case of residential property.
NRIs have leeway to acquire properties except for agricultural land, farmhouse, and plantation property in India. However, NRIs can inherit the above properties-agricultural land, farmhouse and plantation property. Further, NRI can transmit the sale proceeds from land sold in India, although where the amount to be transferred is above one million USD, RBI’s permission is required. These curtailments are present for the stability of the Indian economy- the unwarranted outflow of foreign exchange reserves.
About the author: Akanksha Singh. Studying at Symbiosis Law School, Pune. Currently in 5th year BA LLB. Currently staying in Pune, completed her schooling from St Marys School, Pune, and Brihan Maharashtra College of Commerce respectively. Interested in various fields of law including M&A, Competition Law, and Insolvency and Bankruptcy procedure. Hobbies include reading and playing the guitar. Primarily worked in Corporate firms.