For an NRI to own and maintain a property in India is always a bit cumbersome. On top of that when it comes to inherited property it becomes somewhat more difficult because then they are obliged towards the property. Thus, it becomes essential for them to be aware of all the rules – regulation and obligations with regards to the inherited property.

Although there are some restrictions on NRI while buying property in India such as he can only buy residential or commercial property, there are no constraints when inheriting property. An NRI, PIO (Person of Indian Origin) or a foreign citizen of Non-Indian Origin can inherit and hold residential, commercial property, plantation, agricultural and farmland.

An NRI, PIO or aforementioned foreign citizen can Inherit Property from:

  • an individual resident in India
  • a person resident outside India

However, the person from whom the property is inherited should have acquired the same in agreement with the FEMA regulations, Foreign Exchange Law in force or applicable at the time of acquisition of the property.

Income tax is not payable at the time of inheriting the property, but it may be subject to Wealth Tax. Therefore, when it comes to Inherited Property, it is important to understand/know some of the facts related to Wealth Tax:

  • Wealth tax is always payable on the net value of the property i.e. market value minus loan taken to finance such asset, of a person exceeding Rs. 30 lakh.
  • If the NRI only owns one residential house after inheritance, then he/she does not have to pay wealth tax on it.
  • If an NRI owns properties outside India and also inherits in India, he/she will have to pay wealth tax only on the properties he/she owns in India i.e. wealth tax is applicable only on the assets located in India.
  • Further, if an NRI who owns a property outside India inherits only one estate in India, he/she will be eligible for wealth tax exemption on the property he/she has inherited in India.
  • If an NRI, who owns a property outside India inherits only one estate in India, qualifies as Ordinary Resident of India for the relevant financial year he/she will be eligible for wealth tax exemption on either of the property and balance will be taxable.
  • If an NRI rents out his/her property for more than 300 days during a financial year, he/she will not have to pay the wealth tax.
  • If the net value of the inherited assets of an NRI exceeds Rs. 30 lakh he/she will be charged wealth tax at 1% of the amount exceeding RS. 30 lakh.

Inherited Property is like inheriting obligations and responsibilities which are in a way demanding and wearing. One has to get acquainted with all the rules and regulations related to Inheritance Law and then work with them. Understanding what an NRI can do with what he/she has inherited can help him/her to overcome some of the issues especially when it comes to all the taxes payable and the related exemptions.