Understanding Tax on Inherited Property for NRIs in India

India does not charge an inheritance tax. Estate duty was abolished in 1985, so an NRI who inherits a house, flat or plot pays nothing simply for receiving it. Tax becomes relevant later, when the property earns rent or is sold.

How Inherited Property Is Taxed

The receipt itself is exempt under the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026, in the same way the earlier law exempted property received by will or succession. The heir steps into the previous owner’s position for tax purposes.

Tax Points Every NRI Heir Should Know

• No Tax on Receipt: Property received under a will or by intestate succession is not treated as income of the heir.
• Rental Income: Rent from the property is taxable in India. The heir can deduct municipal taxes paid and then a 30% standard deduction on the balance. The tenant must deduct TDS before paying rent to an NRI landlord.
• Capital Gains on Sale: Tax arises only when the heir sells. The holding period includes the time the previous owner held the property, and the previous owner’s purchase cost is treated as the heir’s cost. For property acquired before 1 April 2001, the fair market value on that date can be used instead.
• Long-Term and Short-Term Gains: Property held for more than 24 months, counting the previous owner’s period, gives long-term gains taxed at 12.5% plus surcharge and cess. The option of 20% with indexation for older property is available only to resident individuals and HUFs, not NRIs. Short-term gains are taxed at slab rates.
• Exemptions on Reinvestment: An NRI can reduce long-term gains by buying another residential house in India (capped at ₹10 crore) or by investing up to ₹50 lakh in specified capital gains bonds within the time limits.
• TDS on Sale: The buyer deducts TDS on the full sale price at the capital gains rate. The NRI seller can apply for a lower deduction certificate in Form 128 if the actual gain is smaller.

FEMA Rules on Inherited Property

The FEMA rule India applies to inheritance is wider than the one for purchases. An NRI or OCI can inherit any property, including agricultural land, plantation property and farmhouses, from a resident Indian or from a person outside India who acquired it lawfully. Agricultural land, plantation property and farmhouses received this way can be sold only to an Indian citizen resident in India.

Repatriation of Sale Proceeds

Sale proceeds of inherited property are credited to the NRO account. An NRI can send up to USD 1 million per financial year abroad from that account, on proof of inheritance, a chartered accountant’s certificate and payment of tax due.

Documents Required

• Will and Probate: Probate is mandatory for certain wills, particularly those covering property in Mumbai, Chennai and Kolkata.
• Legal Heir Proof: Without a will, the heir needs a legal heir certificate or letters of administration, and a succession certificate where debts or securities are involved.
• Mutation: The property must be mutated in the heir’s name in municipal and revenue records before any sale.
• Previous Owner’s Records: The original sale deed and payment proof establish cost of acquisition for capital gains.

Conclusion

NRIs pay no tax on inheriting property in India, but rent and sale proceeds are taxed, and the timing and paperwork decide how much. Questions on succession, probate and mutation fall under inheritance law in India, while repatriation follows FEMA. Speak to our real estate lawyers before you sell inherited property so the tax and transfer steps are handled in the right order.