Inherited Property or Legacy in India? The FEMA Route for NRIs to Remit Inherited Assets Overseas

When a parent or grandparent leaves immovable property, fixed deposits or a share portfolio to a Non-Resident Indian, the asset rarely stays in India for long. The Reserve Bank of India's FAQ on Remittance of Assets, last revised on 02 September 2016, sets the headline rule: assets acquired by way of legacy, inheritance or a deed of settlement may be remitted abroad up to USD 1 million per financial year, and anything beyond that ceiling needs prior approval from the RBI. That single number, USD 1 million, frames almost every cross-border legacy question an NRI will ask.

India abolished estate duty decades ago, so the act of inheriting carries no Indian tax at the moment of transfer. The taxable event is deferred to the day the NRI sells the inherited capital asset, when long-term capital gains are charged at 12.5% under the regime that took effect on 23 July 2024. Understanding that two-step structure -- inherit tax-free, sell taxable, remit within the USD 1 million window -- is the whole exercise. This guide walks through the FEMA gateway, the Indian tax that bites on sale, the foreign-tax-credit mechanics under the relevant treaty, and the NRO/NRE/FCNR plumbing that finally moves the money out.

FEMA / DTAA Position

Under Section 6 of the Foreign Exchange Management Act, 1999, any capital account transaction needs RBI permission unless it is specifically permitted. For comparison, the Liberalised Remittance Scheme caps resident individuals at USD 250,000 per financial year, but that scheme is built for residents and does not apply to an NRI moving inherited wealth. The relevant gateway for legacy assets is instead the Remittance of Assets framework administered by the RBI.

The RBI FAQ on Remittance of Assets (02 September 2016) confirms that NRIs and Persons of Indian Origin may remit up to USD 1 million per financial year out of balances held in Non-Resident Ordinary accounts and out of the sale proceeds of assets acquired by way of inheritance, legacy or a deed of settlement; remittance beyond USD 1 million in a year requires prior RBI approval. The same FAQ extends the facility to a foreign national of non-Indian origin (other than a citizen of Nepal or Bhutan) who has either retired from employment in India or inherited assets from a person resident in India. Critically, the FAQ states that all such remittances are subject to payment of applicable taxes in India -- FEMA clears the foreign-exchange path, but it does not waive a single rupee of tax.

Where the inherited asset later generates a capital gain, the relevant Double Taxation Avoidance Agreement decides which country may tax it. India retains the right to tax capital gains on Indian-situated assets, so the gain is never "exempt" under any treaty. Under the India-USA treaty (effective 12 September 1991), the India-UK treaty (effective 26 October 1993) and the India-UAE treaty (effective 22 September 1993), long-term capital gains on Indian assets remain taxable in India at 12.5%. The India-UAE treaty note is explicit that capital gains on shares of an Indian company are taxable in India, closing a route NRIs in the Gulf sometimes assume is open.

Tax Treatment in India

Receiving an inheritance is not an income event in India; there is no estate or inheritance tax, so neither the deceased's estate nor the NRI beneficiary pays Indian tax at the point of transfer. The taxable moment arrives only on a subsequent sale, and both the holding period and the cost of acquisition are inherited from the previous owner. A flat bought by a late father in 2005 therefore retains its 2005 acquisition date in the NRI's hands, which almost always makes the eventual gain long-term. Source positions on this can be checked against incometax.gov.in.

On the sale of inherited immovable property held long-term, the gain is taxed at 12.5% without indexation under the post-Budget 2024 regime effective 23 July 2024. The earlier 20% rate with indexation is grandfathered only for land or buildings acquired before 23 July 2024, and that choice between 12.5% without indexation and 20% with indexation is available to resident individuals and Hindu Undivided Families alone. An NRI seller does not get the option and is taxed at the flat 12.5% long-term capital gains rate without indexation.

Inherited listed shares and equity mutual fund units behave differently. Sold after one year, they attract LTCG at 12.5% on gains above the Rs 1.25 lakh annual exemption under Section 112A, a rate that replaced the old 10%-above-Rs-1-lakh treatment with effect from 23 July 2024. Sold within a year, the short-term gain is taxed at 20%. The NRI can run the numbers through the NRI capital gains and tax calculator before deciding when to sell.

Because the seller is a non-resident, the buyer must withhold tax at source under Section 195 of the Income-tax Act, 1961. For long-term gains the TDS tracks the 12.5% capital-gains rate plus the applicable surcharge and a 4% health and education cess; Section 195 allows withholding at the DTAA rate or the Act rate, whichever is lower, provided a valid Tax Residency Certificate is furnished. Where the property is let out before sale, the rental stream is taxable too and can be modelled with the NRI rental income tax calculator.

Surcharge stacks on the base tax once total income crosses statutory thresholds: 10% between Rs 50 lakh and Rs 1 crore, 15% from Rs 1 crore to Rs 2 crore, and 25% from Rs 2 crore to Rs 5 crore. In the new tax regime the surcharge is capped at 25% even on income above Rs 5 crore; the 37% top rate survives only under the old regime. NRIs also cannot claim the Section 87A rebate (Rs 60,000 in the new regime for FY 2025-26), which is reserved for resident individuals.

Tax Treatment Abroad

Paying tax in India does not close the matter, because the NRI's country of residence usually taxes worldwide income and then grants a foreign tax credit. The India-USA DTAA addresses this in Article 24 (effective 12 September 1991): tax paid in India is creditable against the US liability on the same income, which prevents the gain being taxed twice. For an NRI in the United States, the 12.5% Indian LTCG on an inherited flat is generally creditable against US federal capital-gains tax, though any Indian tax exceeding the US rate may not be fully usable in the same year.

If the inheritance includes an income-producing portfolio, the treaty caps the withholding on the income stream rather than the capital. Portfolio dividends face 25% under the US treaty, 15% under the UK treaty and 10% under the UAE treaty; interest is capped at 15% under both the USA and UK treaties and at 12.5% under the UAE treaty. UAE-resident heirs must produce a Tax Residency Certificate evidencing a UAE establishment before the treaty rate applies, per the treaty note effective 22 September 1993.

The credit mechanism only neutralises double taxation up to the resident country's own tax on that income; it does not refund excess Indian tax. This is why timing the sale and harvesting the Rs 1.25 lakh equity exemption under Section 112A matters even for an NRI who expects a full credit abroad -- the India-side bill is the floor.

Repatriation Mechanics

Sale proceeds and income from inherited Indian assets must first be credited to a Non-Resident Ordinary account, the rupee account designated for India-sourced money. From the NRO account, the USD 1 million per financial year ceiling under the RBI Remittance of Assets framework (02 September 2016) governs how much can move abroad in any year. The amount and timing can be planned using the NRI repatriation calculator.

Each outward remittance from an NRO account requires Form 15CA, a self-declaration filed by the remitter, and, where tax is payable, Form 15CB, a chartered accountant's certificate confirming that applicable Indian taxes have been paid. These are mandated under Section 195 read with the remittance rules, and authorised dealer banks will not release foreign exchange without them. Documentation on the formats is published at incometax.gov.in.

The distinction between account types matters. NRE (rupee) and FCNR (foreign-currency) balances hold foreign-earned money and are freely repatriable without the USD 1 million cap, but inheritance proceeds -- being India-sourced -- cannot be credited directly to an NRE account or an FCNR deposit. They must route through the NRO account and squeeze through the USD 1 million annual window.

To process the remittance the bank typically requires the will or succession certificate, the death certificate, proof of the heir's relationship, and evidence that capital-gains tax (12.5% where applicable) has been discharged, or that a lower or nil withholding certificate under Section 197 has been obtained from the assessing officer. Assembling this pack before the financial year-end avoids losing a full USD 1 million tranche to the calendar, since the limit resets on 1 April each year and unused headroom does not carry forward.

FAQ

Is inherited property taxable in India when I receive it?

No. India levies no estate or inheritance tax, so there is no Indian tax at the moment you inherit. Tax applies only when you later sell the asset, at which point long-term capital gains are charged at 12.5% under the regime effective 23 July 2024, with the cost and holding period inherited from the previous owner.

How much can I remit abroad in a year from inherited assets?

Up to USD 1 million per financial year, under the RBI Remittance of Assets framework confirmed in the FAQ dated 02 September 2016. Remittance beyond USD 1 million in a single financial year requires prior approval from the Reserve Bank of India.

What tax do I pay when I sell the inherited flat?

A long-term capital gain on inherited immovable property is taxed at 12.5% without indexation. As an NRI you do not get the resident-only choice of 20% with indexation that applies to land and buildings acquired before 23 July 2024, so the flat 12.5% rate plus surcharge and 4% cess applies.

Can I avoid Indian tax by claiming the DTAA?

No. Under the India-USA, India-UK and India-UAE treaties, capital gains on Indian assets remain taxable in India at 12.5% and are never exempt. The treaty only lets your country of residence grant a foreign tax credit for the Indian tax paid, under provisions such as Article 24 of the India-USA treaty effective 12 September 1991.

Do I need a CA certificate to remit the money?

Yes, where tax is payable. Every outward remittance from an NRO account needs Form 15CA, and a chartered accountant's Form 15CB certifying that applicable taxes have been paid, under Section 195 of the Income-tax Act, 1961. Banks will not release the funds without both forms.

Can inheritance proceeds go straight into my NRE account?

No. Inheritance proceeds are India-sourced and must first be credited to an NRO account. Only after tax clearance can they be remitted abroad within the USD 1 million per financial year limit; they cannot bypass the NRO route into an NRE or FCNR account.

Does the USD 1 million limit reset every year?

Yes. The ceiling is USD 1 million per financial year and resets on 1 April. Unused headroom does not carry forward, so large legacies are often remitted in tranches across consecutive financial years to stay within the limit without seeking individual RBI approval.