Inheriting an ancestral home or a piece of land in India is often an emotional moment. It is a transfer of family legacy. But for Non-Resident Indians (NRIs), that emotional moment is usually followed by a wave of financial anxiety.
“Do I owe the Indian government a massive tax just for inheriting this? How do I manage it from thousands of miles away? What if I want to sell it?”
At CA Pavan Kumar & Co., we help NRIs across the globe navigate the transition of family wealth. The rules about inherited property can seem hard to understand, but once you break them down, they are easy to follow.
Here is what every NRI should know about the tax effects of inheriting property in India.
1. The Good News: India Doesn’t Have an “Inheritance Tax”
Let’s start with the best news. India does not currently have an Inheritance Tax or Estate Duty, unlike the US or the UK.
When you get a property through a Will or through the laws of natural succession, the act of inheriting is completely tax-free. You do not owe the Income Tax Department a single rupee simply for receiving the asset, regardless of its market value.
However, the tax holiday ends there. While the inheritance is tax-free, what you do with the property next is strictly taxed.
2. Scenario A: You Rent Out the Property
If you decide to keep the inherited apartment in Bangalore and put it on rent, that rental income is earned in India, which makes it taxable in India.
- The Account: You must deposit this rent into an NRO (Non-Resident Ordinary) account. You cannot deposit it into an NRE account.
- The TDS Trap: By law, your tenant must deduct a steep 31.2% TDS before paying you the rent.
- The Solution: To prevent losing nearly a third of your rental income to TDS, you must file your Income Tax Return in India to claim the standard deduction (30% for property maintenance) and get a refund on the excess tax deducted.
3. Scenario B: You Sell the Inherited Property
If you decide to sell the ancestral home, you will have to pay Capital Gains tax on the profit. But how do you calculate the “profit” if you got the house for free?
- The “Previous Owner” Rule: The law looks at what your parents (or the original owner) paid for the house. For example, if your father bought the house in 1995 for ₹10 Lakhs and you sell it today for ₹1 Crore, your base cost is still ₹10 Lakhs.
- The Indexation Reality (Post-July 2024): Previously, you could adjust that ₹10 Lakhs for inflation. However, following the July 2024 budget, the indexation benefit has been removed for NRIs. While resident Indians have a “grandfathering” option for older properties, NRIs are now subject to a flat 12.5% tax on long-term capital gains without indexation. This makes it crucial to have a CA run your exact numbers.
- The 12.5% TDS Reality: The buyer is legally required to deduct 12.5% TDS (down from the previous 20%) from the total sale value. You must apply for a Lower Deduction Certificate (Form 13) before the sale to prevent your money from being unnecessarily blocked.
4. Repatriating the Money (Taking It Abroad)
If you sell the property, you probably want to move the funds to your country of residence.
As an NRI, you are allowed to repatriate up to $1 Million USD per financial year from your NRO account. However, your bank will not hit “transfer” until you prove that all taxes on the sale have been paid. You will need to show the bank a signed Form 15CA and Form 15CB (certified by a Chartered Accountant).
5. Clear the Title and KYC First
Before you can rent or sell the property, you need to make sure that the KYC and Title are up to date. Make sure that the local government records show that the property title (Khata) has been formally transferred to your name. You will also need a valid Indian PAN card to sign any rental or sale agreement.
Protect Your Family’s Legacy
Inheriting property shouldn’t become a legal burden. With proactive planning, you can legally minimize the tax impact, safely repatriate funds, and preserve your family’s hard-earned wealth.
Need help managing or selling an inherited property in India? Let our NRI advisory team handle the paperwork.
Schedule your appointment now by visiting our website: https://capavankumar.com/
- 📞 Call us: +91 9844081653
- 📧 Email: capavankumars@gmail.com