Inheritance of property is the legal process by which the assets of a deceased person such as land, houses, money, or other belongings are passed on to their legal heirs or beneficiaries. This transfer can occur either through a valid will (testamentary succession) or, in the absence of a will, according to personal succession laws based on the deceased’s religion (intestate succession). Inheritance ensures that the deceased’s estate is lawfully distributed among eligible family members, such as the spouse, children, or parents, through a formal legal process involving documentation and, in some cases, court intervention.

Who Can Inherit?

Various categories of citizens are eligible to inherit property under Indian law, depending on their relationship with the deceased and the applicable personal laws. Spouses, including husbands and wives, are typically primary heirs across all religions. Children, whether biological or adopted, also hold inheritance rights. Parents of the deceased may inherit in the absence of children or spouse. Siblings, such as brothers and sisters, become eligible if there are no closer heirs. Widows or widowers are recognized as principal beneficiaries. Grandchildren can inherit in cases where their parent (a child of the deceased) has passed away before the deceased. In the absence of immediate family, other relatives like uncles, aunts, or cousins may also inherit. While nominees are not legal heirs under succession law, they may temporarily receive financial assets, subject to claims by legal heirs.

The eligibility and extent of inheritance can vary depending on factors such as the religion of the deceased, the succession law in force (e.g., Hindu Succession Act or Muslim Personal Law), the nature of the property (ancestral, self-acquired, movable, or immovable), and whether or not a will exists.

Inheritance By NRI Legal Heirs

Non-Resident Indians are legally allowed to inherit property in India on par with resident Indian citizens, subject to applicable succession laws and foreign exchange regulations. NRIs can inherit both movable assets such as bank deposits, shares, and mutual funds, as well as immovable property like houses, apartments, and even agricultural land. Inheritance may occur either through a Will (testamentary succession) or under intestate succession laws when no Will exists. While NRIs are permitted to inherit agricultural land, they face restrictions on purchasing such property. The overall right to inherit is governed by personal laws based on religion and is also subject to the rules under the FEMA when dealing with repatriation or transfer of inherited assets abroad. In B.C. Singh (D) by LRs v. J.M. Utarid (D) by LRs [2018 INSC 458], the Supreme Court of India held that foreign nationals can inherit property in India under the Indian Succession Act, 1925. The Court ruled that there is no legal bar on inheritance by a foreign national and upheld the right of Ida Utarid, a Pakistani national and sister of the deceased, to inherit a share of the property.

Who can NRIs Inherit From?

NRIs can inherit property or assets in India from a wide range of individuals, just like resident Indians. The right to inherit is based on relationship and succession laws, not on residency status. NRIs can legally inherit from:

1. Parents – One of the most common sources of inheritance; includes both movable and immovable property.

2. Grandparents – NRIs can inherit ancestral or self-acquired property passed down by grandparents.

3. Spouse – In case of the death of a resident or another NRI spouse.

4. Siblings – If a brother or sister dies without a Will or with a Will naming the NRI as heir.

5. Other Relatives – Such as uncles, aunts, cousins, or in-laws, depending on the Will or personal succession laws.

6. Any Indian Resident – Through a valid Will, an NRI can inherit property or assets from any Indian resident (even unrelated), subject to Indian inheritance and tax laws.

Compliance by NRIs to Inherit Property in India

When a NRI inherits property in India, several legal and regulatory steps must be followed to establish ownership and, if desired, transfer or repatriate the assets.

1. Establishing Legal Right to Inherit: If the inheritance is through a Will, the NRI may need to obtain probate from an Indian court, especially in metropolitan cities. In the absence of a Will , a legal heir certificate or succession certificate must be obtained from a competent civil court to validate the claim.

2. Documentation Required: Essential documents include the death certificate of the deceased, proof of relationship, Will or probate (if applicable), legal heir certificate, property ownership records, and the NRI’s passport and OCI/PIO card, if applicable.

3. Income Tax Compliance: NRIs must hold a valid PAN card and are required to file income tax returns in India if the inherited property earns rental income or is sold. They must also pay applicable capital gains tax upon the sale of inherited property.

4. Repatriation of Sale Proceeds (Under FEMA Rules): Under FEMA guidelines, NRIs can repatriate up to USD 1 million per financial year from inherited assets, provided they furnish proof of inheritance, tax clearance certificates, and comply with RBI norms. However, agricultural land even if inherited, cannot be repatriated.

• Repatriation of Sale Proceeds After Selling Inherited Property: Generally, an authorised dealer (bank) may permit the repatriation of sale proceeds from the sale of immovable property (other than agricultural land, farmhouses, and plantation properties) outside India, provided the following conditions are met by the NRI or OCI:

  1. The immovable property was acquired in compliance with the foreign exchange laws applicable at the time of purchase.

  2. Payment for the acquisition was made through foreign exchange received via appropriate banking channels or from funds held in a Foreign Currency Non-Resident (FCNR (B)) account or a Non-Resident External (NRE) account.

  3. The repatriation of sale proceeds for residential properties is limited to a maximum of two such properties.

5. Property Transfer & Mutation: The NRI must apply for mutation of the property in their name with the local municipal or revenue authority. In some cases, stamp duty or registration formalities may need to be completed, such as when the property is transferred via gift or partition.

These steps ensure that the inheritance process is smooth, legally valid, and compliant with Indian laws and financial regulations.

Tax Liability For Inherited Property By a NRI

There is no tax on the inheritance of property itself; however, any income derived from that property, such as rental income, will be subject to tax.

When selling immovable property, it's important to account for capital gains tax. The tax rate on capital gains depends on whether the property is classified as a long-term or short-term capital asset. If the property has been held for more than 24 months, it qualifies as a long-term capital asset. If held for less than 24 months, it is considered a short-term capital asset. For inherited or gifted properties (from close relatives), the holding period of the previous owner is also considered. Long-term capital gains are typically taxed at a lower rate compared to short-term capital gains.

Close relatives include brother (or stepbrother), daughter, son-in-law, father (or stepfather), mother (or stepmother), Hindu Undivided Family (HUF) member, sister, son (or stepson), daughter-in-law, and spouse.

Problems Arising While Inheriting Property

Inheriting property can be a complex process, often involving legal, financial, and emotional challenges. Some of the common issues that arise during the inheritance process include:

1. Disputes Among Heirs: Disagreements among family members or other potential heirs over the division of property can lead to lengthy and costly legal battles. These disputes are more common when the deceased did not leave a clear Will or when the Will is contested.

2. Lack of a Valid Will: If the deceased did not leave behind a valid Will, the property is distributed according to the applicable succession laws (like the Hindu Succession Act, Muslim Personal Law, etc.). This may not align with the wishes of the deceased, leading to conflicts among heirs.

3. Tax and Financial Liabilities: The inherited property may carry tax liabilities, such as unpaid property taxes, capital gains tax (if the property is sold), or income tax (if the property generates rental income). If these liabilities are not addressed, they can create financial complications for the heirs.

4. Property Located in Different Jurisdictions: If the inherited property is located in a different state or country, jurisdictional issues may arise, complicating the legal process. For example, NRIs inheriting property in India may face additional hurdles related to foreign exchange regulations, tax compliance, and repatriation of sale proceeds

5. Inheritance of Agricultural Land: In India, the inheritance of agricultural land can be particularly tricky, as there are restrictions on who can own such land. Some states impose limits on the amount of agricultural land a person can inherit or own, especially for NRIs.

NRI inheritance in India often faces challenges due to complex legal procedures, tax issues, and jurisdictional complications. The lack of a streamlined process for inheritance, particularly in the absence of a Will or in cases of multiple heirs, causes delays and disputes. Additionally, compliance with foreign exchange and tax regulations complicates repatriation of sale proceeds.

To address these issues, the Indian government should simplify the inheritance process for NRIs by providing clear guidelines, establishing a centralized online platform for managing inheritance, and streamlining tax and FEMA compliance. This would ensure a more efficient, transparent, and accessible process for NRIs inheriting property in India.