Think inheritance is tax-free? Here's what NRIs need to watch for in India

'NRIs often stumble over basics like title updates and taxes,' says expert. Inheritance is tax-free, but rental income and gains can trigger TDS, penalties, or compliance issues.

When an NRI inherits property or money from a relative in India, the initial reaction may be to treat it as a tax-free windfall. While that’s partly true, experts caution that failure to understand the nuances of taxation, ownership documentation, and compliance can lead to legal trouble and financial loss.

 

“Under Indian law, there is no inheritance tax or estate duty applicable when an NRI inherits property or money in India from a resident Indian,” says Hardeep Sachdeva, senior partner at AZB & Partners, a law firm. “The transfer is tax-free (from an Indian tax perspective) at the point of inheritance,” he noted.

 

No tax at inheritance, but paperwork is key

 

“Inheritance of assets, including immovable property, securities, and money, by an Indian taxpayer is not, by itself, a taxable event under the Income-Tax Act, 1961,” explains Kunal Savani, partner at Cyril Amarchand Mangaldas.

 

However, establishing clear ownership is vital.

 

NRIs need a death certificate, the registered will (if any), and a Succession Certificate or Legal Heir Certificate. Mutation of property records with local municipal authorities is also necessary.

 

“Certain states require probate of the will, especially for immovable property,” adds Sachdeva.

 

Rental income? Taxed at 30 per cent, TDS is mandatory

If inherited property is rented out, the rental income is taxable in India, and the tenant must deduct TDS at 30 per cent (plus surcharge and cess) under Section 195, says Savani.

 

“In one case, a client received rental income for 18 months without deduction, and the tenant was later served a notice for TDS default,” says Sachdeva. This can be avoided with a rent agreement that clearly outlines TDS responsibilities, he said.

 

“Tenants become assessees-in-default if TDS isn’t deposited,” adds Savani.

 

Selling inherited property? Capital gains apply

Capital gains arise only when the NRI sells the inherited property. Long-term gains (property held for over 24 months, including the deceased’s holding period) are taxed at 12.5 per cent post July 23, 2024.

 

“The cost of acquisition is either the original cost or Fair Market Value as on April 1, 2001, whichever is higher,” says Ritika Nayyar, partner at Singhania & Co.

 

TDS on sale proceeds is mandatory, and NRIs may apply for a Lower or Nil TDS Certificate.

 

Common mistakes NRIs make

NRIs often skip succession paperwork, delay mutation of records, or misreport rental income. Some fail to update their tax residency or don’t file Forms 15CA/15CB while repatriating funds.

 

“These gaps cause long delays and legal disputes,” warns Gaurav K Singh, chairman of Womeki Group, a real estate developer.

 

“In Delhi NCR, for instance, weak documentation has even led to ownership challenges,” he added.

 

“Many NRIs overlook basics like updating property titles, settling local taxes, or even obtaining a PAN card for property-related transactions,” says Rakesh Malhotra, founder and chairman, PRIME Developments.

 

“We’ve seen cases where failure to report inherited property in Indian tax returns led to avoidable penalties,” Malhotra said.

 

Both experts advise NRIs to engage reliable local professionals or property managers, as poor paperwork and remote oversight often lead to legal delays, tenant misuse, or compliance issues.

 

Bottom line

 

While inheriting property or money in India as an NRI does not trigger tax at the outset, any income from such assets is taxable. Complying with tax, property, and FEMA rules is critical and often overlooked. As Sachdeva notes, “NRIs must treat inheritance as both a legal and financial responsibility.”