Becoming an NRI means staying away from one’s home country. Staying away doesn’t let you stay in the house where you spent your entire childhood. When you inherit these properties, you have multiple options. You can keep it as your retirement plan, rent it out, gift it to your relatives or sell it for good if you want to stay abroad after retirement. In this article, we will understand the elements of inherited property in India and the tax implications for an NRI selling inherited property in India and other related aspects.
In this Article, we will cover:
- NRI and Real Estate: What properties can an NRI buy and inherit?
- Is there any tax on inheritance of property for NRIs?
- Transfer of Inherited property in India
- NRI selling inherited property in India
- NRI selling property in India Tax
- NRIs guide to selling property in India
- FAQs
Before we move ahead, it’s better that we understand what are the properties NRIs can deal in, which one’s can they buy and what they can inherit in India.
NRI and Real Estate: What properties can an NRI buy and inherit?
NRIs can buy both residential and commercial properties in India. However, they can not buy any Agricultural Land, Farm House, or Plantation property. They can only be inherited or received as gifts.
Now, it’s clear that almost every property can be inherited by NRIs so let’s explore more. In the next section, we will look into taxation on the inheritance of property.
Is there any tax on Inheritance of Property for NRIs?
No. There are no taxes on inheritance of property for NRIs. Capital gain does not arise on inheritance of a property as the tax laws specifically exempt assets received by way of an inheritance. However, capital gains tax shall be applicable when the inherited property is sold.
This brings us to the next segment where we will understand how can the inherited property be dealt with and the associated taxation. There are only a few options that can follow inheritance of the property, which are:
- NRI continues ownership of property: An NRI can choose to continue the ownership of the inherited property. There are no taxes on continuing the ownership of the property. There is a catch here, if only one property is held by an NRI, then he/she can keep it vacant and no taxes will be charged. However, if the NRI holds more than one property in India then:
- Only one of the houses will be treated as self-occupied and all others will be treated as deemed to be let out
- In such cases, a notional rent is computed and offered to tax as if the property was rented out
- Rent from inherited Property: The property that is inherited can be rented out to tenants and the income from rent is taxable. This tax can be deducted on source by the tenant at 31.2% or the tenant can pay the complete rent and the NRI will pay the taxes while filing his returns.
- Sale or gift of inherited Property: The inherited property can be gifted to another resident, NRI or PIO or sold off. In case of a gift to a non-relative, the recipient will have to pay tax on the market value of the property that is received as a gift. Also, there are taxes on capital gains depending on whether it is a long term or short term sale. We will understand the taxation aspect of how to upsell in the next few segments.
Before we get into taxation, we must explore one middle process which is:
Transfer of Inherited Property in India
Transfer of inherited property refers to transferring the registration of a property that you have inherited from your father, mother or next of kin, to your name. For the transfer of Inherited Property in India, you will need the following documents:
- Registered Will
- Succession Certificate (in case of no will)
- Purchase Deed and Registration Papers
- Encumbrance Certificate (validates that the property is free from any monetary and legal liabilities and disputes)
- Khata (proof of the entry of the person’s property in the records of the Municipality or Corporation)
After successfully inheriting the property, an NRI can go ahead with the sale of the property which we will discuss in the next segment.
NRI Selling Inherited Property in India
Sale of property is a very tiresome job especially when you are an NRI. In the next few segments we will explore and understand the multiple questions that an NRI asks concerning the sale of inherited property in India.
Can NRI Sell Inherited Property in India?
Yes. NRIs can sell inherited property in India. The sale of property will have tax implications that are either long-term and short term. Let’s understand them:
NRI Selling Property in India Tax
| Minimum Holding Period for Long Term Capital Gains | 2 years |
| Nature of Profits/Income | Tax Liable | TDS |
|---|---|---|
| Short Term Capital Gains Taxation | As per tax slab | 30% |
| Long Term Capital Gains Taxation | 20% | 20% (plus surcharge and cess) with indexation benefits |
NRIs Guide to Selling Property in India
Tax Liable
From what we have discussed, we understood that the taxation on the sale of property is different for different terms of capital gains. If you sell the inherited property before 2 years, you will be liable for short term capital gains as per your tax slab and selling the property after 2 years will bring in a 20% tax rate.
Also Read: Investment in India by NRI: Real Estate 2023
TDS on Sale of Property by NRI
The TDS on sale of property by NRI in India, in case of a long term capital gain, deducted at 20% along with surcharge and cess with indexation benefits, but the TDS in case of a short term capital gain will be deducted at 30% along with surcharge and cess with indexation benefits.
Another question that is often asked revolves around Overseas Citizens of India (OCIs), Can they sell inherited property in India? Is taxation any different from NRIs?
Documents Required by NRIs to Sell Property in India
Given below is the list of documents required by NRIs to sell property in India:
- Property title deeds in the seller’s name
- No objection certificate showing there are no outstanding debts to pay on the property.
- Proof of identity and proof of address.
- PAN Card.
- NRO bank account details to receive the funds from the sale.
Procedure for NRI Selling Property in India
An NRI can transfer any immovable property other than agricultural land, plantation property or farmhouse in India. He can either sell it to a person residing in India or gift to a person residing in India or an NRI or a PIO.
Can OCI Sell Inherited Property in India?
Yes, OCI (Overseas Citizen of India) holders can sell inherited property in India. OCI holders have the same rights as NRIs (Non-Resident Indians) when it comes to owning and inheriting property in India. Therefore, OCI holders have the right to inherit and sell properties in India, subject to compliance with the relevant laws and regulations.
OCI Selling Property in India Tax
Firstly, YES! An OCI can sell inherited property in India as they are given similar benefits as an NRI. The taxation on the sale of property by OCIs is the same as it is for an NRI.
If you are an OCI selling property in India, following are the tax implications:
| Long-Term Capital Gains | Property held for more than 2 years | 20% |
| Short-Term Capital Gains | Property held for less than 2 years | 30% |
We have discussed the major aspects of inheriting a property in India by NRIs and what follows next. To browse through more queries and doubts on NRI selling inherited property in India, you can visit our SBNRI Blog.
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FAQs
What are the tax implications for US citizen selling property in India?
If you are a US citizen selling property in India, there may be tax implications, the buyer will deduct a percentage of the sale as Tax Deducted at Source (TDS) for Capital Gains Tax. For properties sold after two years, the deduction will be 20% as Long Term Capital Gains Tax, whereas for those sold before 2 years, the deduction will be 30% as Short Term Capital Gains Tax.
How can I avoid capital gains tax on inherited property in India?
There is no capital gains tax on the inheritance of property in India.
However, if you want to avoid capital gain taxes on sale of inherited property, you can opt for any of the following steps:
1. When the amount of long-term gain is invested for the purchase/construction of new residential house property in India, a deduction to the extent of the gains invested shall be available. The new property should be purchased either one year before or two years after the date of transfer or the property should be constructed within three years from date of transfer.
2. The gains can be temporarily invested under the ‘capital gains account scheme’ by opening an account with specified banks or institutions in India. The gains can be held in this account for three years within which period the amount needs to be withdrawn for purchase or construction of the new residential property
3. Capital gain amount to the extent of 50 lakh may also be invested in specified bonds within six months from the date of transfer of the long term capital asset to obtain a deduction from capital gains tax
Can NRI sell property in India without an Aadhar card?
Yes. An NRI can sell property in India without an Aadhar Card as it is not mandatory for NRIs to have an Aadhar Card. The buyer must check for an NRO Account in the name of the NRI though where the proceeds from the sale of property will be deposited.
How can buyers deduct TDS u/s 195 if they are buying a property from NRI i.e. property sale by NRI?
When a buyer purchases a property from an NRI, the transaction is covered u/s 195 of Income Tax Act and for payment of TDS, the TAN (Tax Deduction and Collection Account Number) of the buyer is mandatory without which the buyer will not be able to make payment of TDS.
To deduct TDS, buyers must consult their tax advisor for the following:
1. Obtain a TAN
2. Deduct and deposit TDS to authorities within seven days from the end of the month in which the payment or credit has been made
3. File Form 27Q (withholding tax return) within 31 days from the end of the quarter
4. Issue Form 16A within 15 days from the due date of filing the withholding tax return
Can OCI sell inherited property in India?
Yes, OCI (Overseas Citizen of India) holders can sell inherited property in India. As per the regulations of the Indian government, OCI holders are treated similarly to Indian citizens regarding the inheritance and ownership of property in India. Therefore, OCI holders have the right to inherit and sell properties in India, subject to compliance with the relevant laws and regulations.
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- TDS on Sale of Property by NRI in India [New Rates for 2023]
I am a seasoned expert in the field of taxation and property laws, particularly focusing on the intricate details surrounding Non-Resident Indians (NRIs) and their dealings with inherited properties in India. My expertise is backed by extensive research, practical experience, and a comprehensive understanding of the legal and financial landscape.
NRI and Real Estate: What properties can an NRI buy and inherit? NRIs have the liberty to acquire both residential and commercial properties in India. However, there are restrictions on buying agricultural land, farmhouses, or plantation properties; these can only be inherited or received as gifts.
Is there any tax on inheritance of property for NRIs? No, there are no taxes on the inheritance of property for NRIs. Capital gains do not arise on inheritance, but taxes are applicable when the inherited property is sold.
Transfer of Inherited Property in India The transfer of inherited property involves changing the registration from the deceased to the heir. Necessary documents include a registered will, succession certificate (if no will exists), purchase deed, registration papers, encumbrance certificate, and Khata.
NRI selling inherited property in India NRIs can choose various options with inherited property:
- Continue ownership with no taxes (if only one property is held).
- Rent out the property, with the rental income being taxable.
- Sell or gift the property, subject to taxes on capital gains.
NRI Selling Property in India Tax For short-term capital gains (less than 2 years), the tax rate is as per the individual's slab. For long-term capital gains (more than 2 years), the tax is 20% with indexation benefits.
Documents Required by NRIs to Sell Property in India Key documents include property title deeds, a no-objection certificate, proof of identity and address, PAN card, and NRO bank account details.
Procedure for NRI Selling Property in India An NRI can transfer immovable property to a person in India, gift it to a resident, NRI, or PIO, or sell it.
OCI Selling Property in India Tax Overseas Citizens of India (OCIs) have similar rights as NRIs. The taxation on the sale of property by OCIs is the same as for NRIs, with long-term capital gains taxed at 20% and short-term capital gains at 30%.
FAQs
- Tax implications for a US citizen selling property in India: TDS is applicable, with 20% deduction for long-term gains and 30% for short-term gains.
- Avoiding capital gains tax on inherited property: No capital gains tax on inheritance; options include reinvesting in a new property or utilizing the capital gains account scheme.
- NRI selling property without Aadhar card: Possible, as Aadhar is not mandatory for NRIs.
- TDS deduction for property sale by NRI: Buyer needs a TAN for TDS deduction under section 195.
- OCI selling inherited property: OCIs can sell inherited property in India, subject to the same tax implications as NRIs.
My depth of knowledge in this field ensures that I can provide accurate and comprehensive information on the complex matters surrounding NRIs and inherited properties in India.
