Repatriating Inherited Property and Asset Sale Proceeds: The USD 1 Million NRO Route for NRIs

When a Non-Resident Indian (NRI) or Person of Indian Origin (PIO) inherits a house in Mumbai or a plot in Pune and then sells it, two separate rulebooks govern the money: the Income-tax Act, 1961, which decides how much tax India keeps, and the Foreign Exchange Management Act, 1999 (FEMA), which decides how much of the balance can legally leave the country. The single most important number in this second rulebook is USD 1 million per financial year — the ceiling on remittances out of Non-Resident Ordinary (NRO) balances and out of the sale proceeds of inherited assets, fixed by the Foreign Exchange Management (Remittance of Assets) Regulations, 2016.

This guide walks through both rulebooks in the order they actually apply: the FEMA and treaty position first, then Indian tax, then the interaction with tax abroad, and finally the mechanics of moving the money. Every figure below is drawn from the governing statute, the relevant Double Taxation Avoidance Agreement (DTAA), or a Reserve Bank of India (RBI) master direction. Where a fact cannot be tied to a primary source, it has been left out.

FEMA / DTAA Position

The remittance right for inherited assets sits in Notification No. FEMA 13(R)/2016-RB dated 1 April 2016 — the Remittance of Assets Regulations — consolidated for banks in FED Master Direction No. 13. Under this framework an NRI or PIO may remit up to USD 1 million per financial year out of the balances held in an NRO account and out of the sale proceeds of assets acquired in India by way of inheritance or legacy. The financial year runs 1 April to 31 March, and the limit resets each year, so a large estate can be repatriated in tranches across successive years.

The remittance is not automatic. The authorised dealer (AD) bank must obtain an undertaking from the remitter that the amount represents the remitter's legitimate receivables in India and is not borrowed from any other source. Where the USD 1 million is sent in instalments, the RBI framework requires that all instalments be routed through the same AD bank — you cannot split a single year's remittance across two banks. Critically, the regulations state that all such remittances are subject to payment of the applicable taxes in India; FEMA clearance is a foreign-exchange permission, not a tax exemption.

FEMA's architecture matters here because breaching it is expensive. Section 3 of FEMA, 1999 restricts unauthorised dealings in foreign exchange, and Section 6 requires RBI permission for capital-account transactions unless a class of transaction is specifically permitted. Contravention is penalised under Section 13 of FEMA at up to three times the sum involved, or Rs 2 lakh where the amount is not quantifiable, whichever is higher, with a further Rs 5,000 for every day the contravention continues. These are the stakes that make getting the paperwork right worthwhile.

On the treaty side, one myth needs killing immediately: a DTAA does not make the capital gain on inherited Indian property tax-free. India retains taxing rights over gains arising from immovable property situated in India. Under the India-USA treaty (in force from 12 September 1991), the India-UK treaty (26 October 1993), and the India-UAE treaty (22 September 1993), the long-term capital gains rate that India applies is 12.5% — the same domestic rate, not a reduced or nil treaty rate. The treaty's job is not to exempt the Indian gain; it is to ensure the same gain is not taxed twice, through the foreign tax credit mechanism discussed further below.

Tax Treatment in India

Inheritance itself is not a taxable event in India. There is no estate duty or inheritance tax, and the mere receipt of property from a deceased relative does not create income. Tax arises only when the heir sells the inherited asset, and the taxable amount is the capital gain on that sale.

Two rules make inherited property gentler to sell than most people expect. First, the holding period and the cost of the previous owner (the deceased) are carried over to the heir, so a property the parent bought in 1995 is long-term in the heir's hands from day one. Second, for property acquired before 23 July 2024, the seller may compute long-term capital gains at 20% with indexation, using the indexation benefit that inflates the original cost. For property whose acquisition falls on or after 23 July 2024, the post-Budget-2024 regime applies a flat 12.5% without indexation. The table below sets out the two tracks.

Because the deceased's acquisition date is inherited along with the asset, most genuinely inherited properties fall on the grandfathered 20%-with-indexation track, which frequently produces a lower tax than the headline 12.5% flat rate once decades of indexation are applied. You can model both outcomes for a specific property on the capital gains calculator.

For an NRI seller, tax is not paid at the end of the year — it is withheld at source by the buyer. Section 195 of the Income-tax Act, 1961 requires the buyer to deduct tax at source (TDS) on payments to a non-resident, applying either the DTAA rate or the rate in the Act, whichever is lower. On a long-term gain the applicable withholding tracks the 12.5% long-term capital gains rate, and this base is then increased by surcharge and by the 4% health and education cess. Surcharge is stacked on the base tax as follows.

Note that the surcharge on income above Rs 5 crore is capped at 25% in the new tax regime; the 37% top rate survives only in the old regime. On top of the base tax and surcharge, a 4% cess applies uniformly.

The tax bill can be reduced or deferred through three reinvestment reliefs. Section 54 exempts the long-term gain on a residential house if the proceeds are reinvested in another residential house within the statutory timelines. Section 54F extends similar relief where the long-term asset sold is not itself a house but the entire net consideration is invested in a residential house, subject to conditions. Section 54EC allows up to Rs 50 lakh of long-term capital gain to be sheltered by investing in five-year bonds issued by NHAI or REC. These reliefs apply to NRIs on the same terms as residents, and they directly shrink the base on which Section 195 TDS is computed once a lower-deduction certificate is obtained. The NRI tax calculator helps estimate the residual liability after reliefs.

Tax Treatment Abroad

The gain that India taxes at 12.5% (or 20% with indexation) does not vanish when the money reaches the NRI's country of residence. Most residence countries tax their residents on worldwide income, so the same capital gain is potentially taxable a second time abroad. The DTAA prevents that double hit not by exempting the Indian gain but by granting a foreign tax credit (FTC) in the country of residence.

For a US-resident NRI, Article 24 of the India-USA DTAA provides that the foreign tax credit is available in the country of residence — the United States gives credit for the Indian tax paid, up to the US tax otherwise due on that gain. The India-UK treaty operates the same relief mechanism and, for anyone caught as tax-resident in both countries in the same year, Article 4 of the India-UK treaty supplies a tie-breaker to allocate residence to one state. The India-UAE treaty is the outlier that residents most often misread: because the UAE levies no personal income tax, there is often no foreign tax against which to claim a credit, but the treaty still requires a Tax Residency Certificate (TRC) supported by proof of a UAE establishment before treaty benefits can be invoked in India.

The practical sequence is: India taxes first as the source state, the NRI documents the Indian tax paid, and the residence country then either credits or exempts that gain under its own domestic FTC rules read with the treaty. The credit is generally limited to the lower of the Indian tax paid and the residence-country tax on the same income, so a high Indian rate is not always fully recoverable abroad. The DTAA benefit calculator and the foreign tax credit calculator let an NRI estimate the net cross-border position. For the treaty concept itself, see the DTAA glossary entry.

The table below summarises the treaty rates that matter to an inheriting NRI across three common corridors.

In every corridor the long-term capital gain on immovable property in India is taxed by India at 12.5%; none of these treaties treats that gain as exempt.

Repatriation Mechanics

Once the property is sold and the tax settled, the sale proceeds are credited to the seller's NRO account, because sale proceeds of Indian assets are India-sourced funds. The NRO account is the mandatory landing zone; funds cannot be paid directly into a Non-Resident External (NRE) account. The distinction is worth internalising: an NRO account holds India-sourced income and is subject to the USD 1 million annual repatriation cap, whereas an NRE account holds foreign-earned funds that are freely and fully repatriable without that cap.

Moving inherited sale proceeds abroad therefore means moving them out of the NRO account within the USD 1 million per financial year ceiling set by the 2016 Remittance of Assets Regulations. The bank will not release the funds on the customer's say-so alone. It requires the remitter's undertaking that the money is legitimate and unborrowed, and it requires tax paperwork: a Form 15CA self-declaration and, above the prescribed threshold, a Form 15CB certificate from a chartered accountant confirming that the appropriate tax has been deducted or paid, as prescribed under the Income-tax framework for payments to non-residents.

The step sequence in practice is:

1. Sell the inherited property; the buyer deducts Section 195 TDS at the applicable long-term capital gains rate plus surcharge and 4% cess.
2. Deposit the net proceeds in the NRO account and pay any residual capital gains tax (or claim reinvestment relief under Sections 54, 54F or 54EC).
3. Obtain the chartered accountant's Form 15CB certificate and file Form 15CA online.
4. Submit the FEMA remitter's undertaking and the tax certificates to the AD bank, which remits up to USD 1 million for the financial year through that single bank.
5. Carry any balance above USD 1 million to the next financial year, routed through the same AD bank.

You can model the net amount that actually lands abroad, after TDS and the annual cap, using the repatriation calculator and the NRO to NRE transfer calculator. Note that funds held in an FCNR deposit, by contrast, sit outside this cap because they are held in foreign currency and are fully repatriable — a distinction the RBI FAQ on remittance of assets draws explicitly.

FAQ

Is inherited property taxed when I receive it in India?

No. India has no inheritance tax or estate duty, so receiving property from a deceased relative is not a taxable event. Tax under the Income-tax Act, 1961 arises only when you sell the inherited asset, and it is levied on the capital gain — computed at 12.5% without indexation for assets acquired on or after 23 July 2024, or at 20% with indexation for the grandfathered pre-23-July-2024 track.

How much can I repatriate from the sale in one year?

Up to USD 1 million per financial year out of your NRO balances and inherited-asset sale proceeds, under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016 (FEMA 13(R)/2016-RB). Amounts above that ceiling carry over to the next financial year, and all instalments in a given year must be routed through the same authorised dealer bank.

Does my DTAA make the capital gain tax-free?

No. India retains taxing rights over gains on immovable property situated in India, and under the India-USA, India-UK and India-UAE treaties that gain is taxed by India at 12.5%. The treaty prevents double taxation through a foreign tax credit in your country of residence, not by exempting the Indian gain. Anyone quoting a DTAA "exemption" on Indian property gains is misreading the treaty.

What TDS applies when an NRI sells inherited property?

The buyer must deduct tax at source under Section 195 of the Income-tax Act, applying the DTAA rate or the Act rate, whichever is lower. On a long-term gain this tracks the 12.5% long-term capital gains rate, increased by the applicable surcharge (10% to 25%, capped at 25% in the new regime) and the 4% health and education cess. A lower-deduction certificate can reduce this where reinvestment relief applies.

Can I claim relief if I reinvest the sale proceeds?

Yes. Section 54 shelters the gain on a residential house reinvested in another house, Section 54F covers reinvestment of the net consideration from a non-house long-term asset into a residential house, and Section 54EC allows up to Rs 50 lakh of long-term gain to be invested in five-year NHAI or REC bonds. NRIs claim these on the same terms as residents.

What paperwork does the bank require to release the funds?

The AD bank needs a remitter's undertaking that the funds are your legitimate, unborrowed receivables in India, plus tax documentation — a Form 15CA declaration and, above the prescribed threshold, a Form 15CB certificate from a chartered accountant confirming the tax position. FEMA clearance is a foreign-exchange permission only; the RBI framework states expressly that remittances remain subject to the applicable Indian taxes.

What happens if I breach the FEMA limit?

Contravention of FEMA is penalised under Section 13 of FEMA, 1999 at up to three times the amount involved, or Rs 2 lakh where the amount cannot be quantified, whichever is higher, plus Rs 5,000 for each day the contravention continues. Routing an over-limit remittance or using borrowed funds to inflate the remittable balance falls squarely within this penalty.