No Tax on Inherited Property in India for an NRI

By SiliconIndia   |   Friday, April 19, 2013
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Bangalore: Real estate investment in India is always attractive to Non resident Indians (NRIs). A myth surrounds that real estate investment is one among the safest as it gives better return over time. There are many NRIs who own multiple properties in India and among them some properties are inherited. Like other investments, real estate also has certain tax challenges.  

Let’s take inherited property as an example. Currently, in India, there is no inheritance tax and so, if an NRI inherits a parental or ancestral property then no inheritance tax is required to pay, reports Saroj Maniar of Live Mint.

According to the Income Tax Act in India, if an individual (both NRI and resident) possesses more than one house, then one of the houses will be considered as self-occupied and is excluded from tax payment because no income tax is charged on self-occupied property.  And, the other house, whether the house is put on rent or no, will be considered to be given on rent and the tax payment is required on the second property.

Similarly, once you inherit an ancestral property, you become the owner naturally and the same law or tax rules apply if you had bought the property. If the inherit property is the only property of an NRI, then no income tax payment is required. But, if the inherit property is not the only property of an NRI, computing notional income on the second property is required.

To calculate notional income, an NRI has to consider a reasonable rent the house would get in an open market. Then from such rent, the municipal taxes paid will be deducted along with the fixed allowance of 30 percent of the reasonable rent.

The balance amount would be taxable as income from house property. The NRI also has to pay wealth tax one property on the valuation to be done. This will be based on the rules stated in the Indian wealth tax act, which is 1 percent of the total amount exceeding 30 lakh. Only after this, NRIs can file income tax and wealth tax returns in India.

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