Who are NRIs?
The term "NRI" (Non-Resident Indian) is not explicitly defined in any specific act or legislation. However, by interpreting the definition of "Person Resident in India" as outlined in two key laws—the Income Tax Act, 1961, and the Foreign Exchange Management Act, 1999 ("FEMA")—we can infer the following:
An NRI is an Indian citizen who:
- Has not resided in India for more than 182 days during the preceding financial year or
- Has left India or resides outside the country with the intention of taking up employment abroad or
- Has left India or resides outside the country to pursue business or employment opportunities abroad or
- Has left India or resides outside the country with the intention of staying abroad for an indefinite period.
Inheritance of Property by NRIs: Rights, Regulations, and RBI Approvals
There is no tax on inheritance of property, however, any income (such as rental income) received to that property shall be subject to tax.
Types of Inheritable Property
NRIs, similar to other Indian citizens, possess the legal right to inherit various forms of immovable property in India. This includes residential properties, commercial properties, agricultural land, and farmhouses.
Regulations Governing Inheritance
The Foreign Exchange Management Act (FEMA) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, govern property inheritance by NRIs. While NRIs are prohibited from purchasing agricultural land, they are permitted to inherit it. However, inherited agricultural land can only be sold to a resident Indian. Importantly, NRIs are legally entitled to inherit agricultural land and farmhouses, a right otherwise restricted under Indian property transfer laws. This right extends to properties inherited from family members and relatives.
Inheriting from Another NRI
Inheriting property from another NRI is subject to specific regulations. If the beneficiary is a foreign citizen who is also an NRI, prior approval from the Reserve Bank of India (RBI) is required. Furthermore, the individual transferring the property to the NRI must have acquired the property in compliance with FEMA regulations at the time of acquisition.
RBI Approval Requirements
If the property was acquired without the necessary RBI approval (when required), the NRI cannot inherit the property without first obtaining approval from the RBI.
Repatriating Sale Proceeds of Immovable Property in India
Restrictions on Repatriation
A person resident outside India who acquired immovable property in India through inheritance or while they were a resident of India cannot repatriate the sale proceeds without prior RBI permission.
Repatriation Allowed Up to USD 1 Million
NRIs can repatriate up to 1 USD million per financial year without prior RBI approval if the property was acquired:
- Through inheritance from a person resident in India.
- From a person who has retired from employment in India.
- From a spouse resident in India who inherited the property.
Repatriation Above USD 1 Million
Repatriation exceeding USD 1 million per financial year requires prior RBI approval.
Conditions for Repatriation
Regardless of the amount, repatriating sale proceeds is subject to these conditions:
- The property must have been acquired in accordance with FEMA provisions.
- The acquisition payment must have been made through permissible payment modes.
- For residential properties, an NRI can only repatriate the sale proceeds of a maximum of two properties.
Note: - To repatriate sale proceeds, NRIs must submit Forms 15CA and 15CB. Form 15CB must be signed and submitted by a chartered accountant.
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