Buying a property in India is a decision that most NRIs can take after weighing the pros and cons of various tax and regulatory implications. But getting a property as inheritance is often not a choice, especially for first generation NRIs or PIOs whose parents bequeath to them, property situated in India. In such cases, NRIs must know how to deal with such inheritances.
Transfer of property title while inheriting in India
It can become a nightmare for an NRI who wants to inherit his ancestral property. The property documents along with the appropriate identification are mandatory while inheriting the ancestral property. The property inheritance can be an easy process if the documentation and the legal work are done precisely. Adding on to the benefits would be a clearly written or typed “will”, Nomination (where ever applicable) the process of transferring the title of a Property in India can be quite a hassle if the paperwork is not in order.
Documents required for transfer the title of inherited property
Nomination
Where your Property is part of Housing Society or Apartment Association, Nomination is first document based on which Property (Flat) can be transferred in the name of Nominee/s. However Nomination is not conclusive Document as Nominee are considered as Trustee till names are transferred through Probate/Succession Certificate/Change in Property Card etc.
Will
A property Will plays an important role for any property transfer. A will can be registered or unregistered and can be typed or written. Will is the legal declaration of a person's intention, which he/ she wishes to be performed after his/her death and once the Will is made by the testator/ testatrix, it can only be revoked during his/her lifetime.
Probate
'Probate' means the copy of a Will certified under the seal of a court of competent jurisdiction with a grant of administration of the estate of the testator. A probate can be granted only to the executor appointed under the Will. Necessity of a Probate in certain cases: As per the provisions of the Indian Succession Act, the provisions of testamentary succession are applicable to the Will if the Property is situated in the Jurisdiction of High Courts of Calcutta, Bombay or Madras. Even otherwise, it would be advisable to seek Probate of Will in case of: (i) When there are problems with an existing Will (ii) When the beneficiaries have predeceased the testator and such other cases.
Succession certificate
A succession certificate is important in the absence of a will. The heirs should procure a succession certificate from the court. Important documents like the death certificate of the deceased, the birth certificate of the heirs, copy of the ration card, bank statement of the heirs and others should be submitted to procure a succession certificate. These documents are required to prove that the heir is the rightful owner of the inherited property.
Original purchase deed and registration documents
It is very important that the heir has the original purchase deed and the registration documents of the property. In most cases, the older properties do not have their original purchase deed, which in case can be substituted with certified copies of the title deed from the jurisdictional registrar's office. Where property is in Housing Society, Share Certificate is also required.
Encumbrance certificate
An encumbrance certificate is important to maintain the record and it reflects all the property transactions carried out for the immovable property. The property can be sold, leased, mortgaged, partitioned, gifted or released.
Land related documents
7/12 or Khata is mandatory in for any property transaction. Khata basically is an evidence of who owns and possesses the property concerned. This document records the entry of the property owner details with the Panchayat/municipality/corporation. Details like the property owner's name, the property type, the property taxes paid/to be paid and more will be recorded in the khata. However, there is a slight difference between a "khata" and a property registration document. The property registration document records the sale/purchase of the property from one owner to another. The khata on the other hand records the annual property taxes paid. The khata changes with the municipal corporation with the registration of the property being changed. Due to the lack of automatic process, the khata should be transferred separately. You should check for the similar document in the state you are investing.
Registered Power of Attorney (POA)
If you are living abroad and managing your assets in India has become a headache for you, Power of Attorney (PoA) is the perfect instrument for you. Because of its various benefits, even resident Indians tend to execute POAs. People having numerous assets find it tough to be present everywhere physically. Therefore, they execute POAs to delegate the responsibility.
Types of PoA
Special PoA: In a special PoA, the power of the agent is restricted and limited to a specific purpose. A special POA may be transaction specific and the POA ceases on the completion of transaction.
General PoA: Under a general PoA, broad powers are granted to the representative to make decisions on behalf of the principal. Besides, the representative can also carry out the various activities on behalf of the principal without any limitation on transactions.
Durable PoA: A durable POA remains effective for a lifetime, unless it is explicitly cancelled. A specific clause can be inserted in the document, stating that the representative's power would remain valid even if the principal becomes incapacitated.
POA in real estate
In real estate, PoA could be used for the purposes mentioned below:
1. Mortgage, exchange, sell, lease, collect rent, grant, borrow
2. Manage and settle the disputes
3. Perform the acts as required by banks, insurance companies and enter into contracts, deal with bonds, etc.
Power of attorney by more than two persons
In cases where a property has numerous owners, it would be difficult for all the people concerned to collectively complete a transaction. In such cases, granting the power of attorney to one person would make matters simple. As a result, this person would be empowered to act on behalf of all the owners collectively.
What if you are outside India?
If you are settled abroad and won't be able to visit India in the near future, you may execute a POA from the country of your domicile through the Indian Embassy/ Consulate. There are two ways to execute a POA from abroad:
Legalization: In this case, signatures of the notary or judge before whom the POA is executed are required to be authenticated by the duly accredited representative of the Indian Embassy/Consulate. According to Section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948, notarizing a deed from an authorized officer of the Indian Consulate/Embassy would be considered a valid notary. Such a POA is not required to be stamped at the time of execution. However, it needs to be stamped within three months from the date of receipt of the POA in India. Stamp duty would be payable according to Section 2(17) read with Schedule-I of the Indian Stamp Act, 1899, when the deed is presented for registration in India.
Apostalisation: The deed of POA executed outside India are proven through an apostallisation process which is governed by the Hague Convention, 1961. Also known as superlegalisation, apostille is a certificate which confirms and verifies the signature/seal of the person who authenticated the document. However, this deed, too, needs to comply with Indian laws such as the Indian Registration Act, 1908, and the Power of Attorney Act, 1882. You also have to pay the stamp duty on this. If one wants to obtain apostille in the US, he/she can refer to this link.
Regulation of Power Of Attorney
A PoA paper should be interpreted to include all the necessary powers for its execution. The POA has to be given a strict interpretation and no extra rights should be construed, unless they are specifically mentioned. For instance, if the POA mentions “right to lease”, the “right to sell” can't be attributed to it.
The representative has to act within his scope and cannot bind the principal by his acts which are beyond his authority. As an NRI, you can't be sued or held responsible for the fraud of the representative, unless it is proved that the fraud was done in connivance with you.
Revocation of Power Of Attorney
If the principal thinks that the legal representative is misusing the power granted to him or is unable to properly discharge the duties assigned to him, he has the option to revoke the PoA. Revocation might also be required if the principal thinks that now he is in a position to take care of his assets.
How to revoke a Power Of Attorney?
1. You may revoke a PoA during your lifetime.
2. PoA is also revoked when the principal dies or becomes insane or is declared insolvent.
3. PoA can be revoked on mutually agreed terms between the principal and the representative.
4. A PoA is revoked when the specific transaction for which it was executed has been accomplished.
Revocation of POA has to be done in the same manner in which it was executed. If the PoA was registered with the Sub-Registrar, you have to get it cancelled from the same office. Also, the representative and the parties concerned need to be duly informed about the cancellation of the POA. If interests of a reasonably large number of people are involved, it is recommended that a notice be published in a newspaper. A notice about the revocation of the POA could also be posted on the property where it can be visible to the general public.
Conditions for repatriation in case of property inherited from person resident in India: (i) The amount of repatriation should not exceed USD 1 million per financial year (ii) The NRI must produce documentary evidence in support of the inheritance and an undertaking and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes (Forms 15CA & 15CB for the purpose that taxes have been paid from the gains on sale of Inherited Property) (iii) In cases of deed of settlement made by either of his parents or a close relative and the settlement taking effect on the death of the settler the original deed of settlement. (iv) Where the remittance as above is made in more than one installment, the remittance of all such installments shall be made through the same Authorised Dealer
Double Taxation NRIs would also need to look into provisions of the countries they live in, in order to determine tax implications of inherited properties and gain from sale in their country of residence.
Inheritance Tax
India does not tax inheritances at the time when such inheritance is received. Tax is levied only on the income generated by the receiver from the inheritance. So in case of financial assets, any interest, dividend or capital gains arising on sale of the assets are taxed in the hands of the receiver. In case of property too, only rental income or capital gains from sale are taxed in the hands of the receiver. It is important to remember that in India, capital gains from inherited property is calculated as the difference between the sale proceeds and the original cost of purchase by the bequeathor (after indexation.) FAQs
Can an NRI inherit property in India? Yes, a Non Resident Indian (NRI), Person of Indian origin (PIO) or even a foreign national of non-Indian origin can inherit and hold property in India. This includes residential and commercial property, agricultural, plantation and farm land. From whom can an NRI inherit property? An NRI, PIO or foreign national as mentioned above can inherit property from: (a) a person resident in India (b) a person resident outside India However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange law in force or FEMA regulations, applicable at the time of acquisition of the property. Is there tax payable in India at the time of inheriting the property? No income tax is payable at the time of inheriting the property. However, the property may be subject to wealth tax up to 31st March, 2016 after which Wealth Tax has been abolished.
Can an NRI rent inherited property? What are the various implications? Yes, an NRI can rent inherited property. The implications are the same as those applicable for renting out purchased property. Can an NRI sell inherited property? An NRI can sell inherited property to a person resident in India, an NRI or a PIO. A PIO can sell property in India to a person resident in India or an NRI. In case a PIO wants to sell to another PIO, he will need to get prior approval from RBI. An NRI holding agricultural land, plantation land or farm house may sell these properties only to a person resident in India and who is a citizen of India. Can an NRI repatriate proceeds of inherited property? Yes, general permission is available to NRIs and PIOs to repatriate the sale proceeds of property inherited from a person resident in India subject to the conditions mentioned below. If those conditions are fulfilled, the NRI need not seek permission from the RBI. However, if the property has been inherited by an NRI from a person resident outside India, then the NRI must seek specific permission from the RBI what are the tax implications of sale of inherited property? The tax implications of sale of property are the same as those applicable in case of purchased property. The purchase price for calculation of capital gains will be the purchase price paid by the person who bequeathed the property. The holding period for determining if the gains are long term or short term will be computed from the date of purchase by the person who bequeathed the property.
How to make the transfer of title effective?
A process of mutation of revenue records can make the transfer of title an effective process. Mutation of revenue records simply means the updation of the new owner's details in the books of the concerned development authority, the municipal corporation or the village panchayat.