Inheriting property in India is a common situation for the NRI community — a parent's home, ancestral land, or a flat passed down through a will or family settlement. The good news: India has no inheritance tax or estate duty. Receiving the property is completely tax-free.
The complications arise when you decide to sell the property, rent it out, or send the proceeds abroad. Each of these triggers a distinct set of tax and compliance obligations that NRIs must navigate carefully.
Step 1: Establish Legal Title Before Anything Else
Before thinking about tax, the property must be legally transferred to your name in the land records. This requires:
- If there is a registered will: Apply for probate from the relevant High Court (mandatory in presidencies — Bombay, Calcutta, Madras — and recommended everywhere)
- If there is no will: Apply for a Succession Certificate from a civil court, or a Letter of Administration depending on what assets are involved
- Mutation: Once probate/succession certificate is obtained, apply to the local municipal body or registrar for mutation — changing the property records from the deceased's name to yours
Selling without completing this process creates title defects that can derail the transaction and trigger disputes later — particularly when co-heirs are involved.
Selling Inherited Property: Capital Gains Tax
When an NRI sells inherited property, the gain is taxed as follows:
- Holding period: The holding period includes the time the deceased held the property. So if your parent held the property for 20 years and you inherited it, the property is already long-term in your hands from day one.
- Long-term capital gain (LTCG): If held over 24 months, taxed at 20% with indexation (or 12.5% without indexation — you may choose the lower figure post Budget 2024 for property acquired pre-July 2024)
- Short-term capital gain (STCG): If total holding period is 24 months or less, taxed at 30% as part of normal income slab rates for NRIs
How to Calculate the Cost of Acquisition
This is where many NRIs get confused. The cost of acquisition for inherited property is:
- General rule: The amount the deceased owner originally paid for the property
- Pre-2001 property: If the deceased acquired the property before April 1, 2001, you have the option to use the Fair Market Value (FMV) as of April 1, 2001 as the cost — this is usually much higher than the original purchase price and significantly reduces your capital gain
- Indexation: For LTCG, the cost is indexed using the Cost Inflation Index (CII) published by the government each year, further reducing the taxable gain
Getting an accurate computation — especially for older properties where the original cost records may be missing — is something a CA must handle, using FMV valuations and registered valuer reports where needed.
TDS When an NRI Sells Inherited Property
The buyer of inherited property from an NRI must deduct TDS under Section 195, at the same rates as any other NRI property sale:
- 20% + surcharge + 4% cess for LTCG (property held > 24 months total)
- 30% + surcharge + 4% cess for STCG
The TDS is calculated on the full sale consideration, not just the capital gain. This means on a ₹1 crore sale, ₹20 lakh is withheld — even if your actual tax liability is much lower after cost and exemptions.
To avoid this cashflow problem, apply for a Section 197 lower TDS certificate before the sale. See our complete Section 197 guide for the TRACES application process. You can factor in the reduced taxable gain (due to indexed cost and FMV election) in your Form 13 application, resulting in a certificate for a lower deduction rate.
Capital Gains Exemptions Available for Inherited Property
Even after calculating gains, NRIs can claim exemptions under:
- Section 54: Reinvest the capital gain in a new residential property in India within 2 years (purchase) or 3 years (construction) — full Section 54 guide here
- Section 54EC: Invest up to ₹50 lakh of gains in NHAI/REC/PFC bonds within 6 months of sale — especially useful if you do not want to buy another property
- Section 54F: If you sell a non-residential inherited asset (land, commercial property) and invest the entire net sale proceeds in a residential property
Repatriation of Sale Proceeds Abroad
Once the sale is complete and taxes are paid, you will want to transfer the money to your overseas bank account. The process:
- Sale proceeds must first be credited to your NRO account
- Repatriation is permitted up to USD 1 million per financial year (April–March)
- Your CA must issue Form 15CA and 15CB — a certificate confirming that applicable taxes have been paid on the funds being remitted
- Submit 15CA online on the income tax portal; 15CB is a physical certificate issued by the CA
- Present these to your Indian bank to process the foreign remittance
Special note: If you inherited property from a resident Indian (not an NRI), there may be additional FEMA compliance nuances around repatriation. Consult a CA before initiating the transfer.
Documents Checklist for NRI Selling Inherited Property
- Probate or succession certificate / letter of administration
- Death certificate of the deceased
- Original purchase documents (sale deed, agreement) in the deceased's name — to establish cost basis
- Registered valuer certificate for FMV as of April 1, 2001 (if pre-2001 property)
- Mutation / khata record showing property in your name
- Your PAN card, passport, OCI/PIO card (if applicable)
- NRO account bank details
Frequently Asked Questions
Is there any inheritance tax or estate duty on inherited property in India?
No. India abolished estate duty in 1985. Receiving property through inheritance is completely tax-free. Capital gains tax only applies when you sell the inherited property.
What if co-heirs dispute the sale?
All legal heirs must either consent to the sale or the selling heir must have established exclusive title through probate, partition deed, or court order. A disputed title creates significant legal risk for the buyer and often collapses the transaction. Resolve title issues before listing the property.
How do I compute gains if I inherited property from someone who inherited it?
Trace back to the original purchaser. The cost of acquisition is always the amount paid by the first person who actually purchased or constructed the property (or FMV as of April 1, 2001 if that was before this date). The holding period starts from the original acquisition date.
Can I claim Section 54 exemption for gains on inherited property?
Yes. Section 54 is available for NRIs selling any long-term residential property — inherited or self-purchased. Reinvest the capital gain amount in a new residential property in India within the specified time limits to claim the exemption. See our Section 54 & 54EC guide for complete details.
Related reading: NRI Property Sale Tax Guide | Section 54 & 54EC Capital Gains Exemption | Lower TDS Certificate: Section 197 Guide