An NRI in Australia is eligible to inherit a property in India and this property can be residential, commercial, agricultural land or even farmland. Income tax implication An Australian NRI can inherit property in India from the below -mentioned categories.
- From a person who is resident in India
- From a person who is resident outside India
It is necessary that the person from whom the inheritance of property is been taking place has acquired the property as per the FEMA (Foreign Exchange Management Act) or the laws of the Foreign Exchange.
Inheritance of property in India is a situation that does not arise out of choice of the inheritor. So, it is inevitable for the inheritor to know about the tax implications on the inherited property.
Tax implications on inherited property for Australian NRIs
At the time of inheritance of the property, there is no requirement for the payment of Income Tax. But, there can be certain cases in which the inheritor of the property might have to pay Wealth Tax for the property. An NRI in Australia is required to pay a wealth Tax if his asset’s net value is more than Rs. 30 lakhs. The Wealth Tax will be levied at the rate of 1% of the amount which is more than Rs. 30 lakhs.
The asset can be a single residential house owned by the NRI in India. In this case, if the inheritor owns this single house as the only asset in India then he is not required to pay any Wealth Tax according to Section 5 of the Wealth Tax Act. Moreover, if an NRI in Australia has given his inherited residential property in India for rent for more than 300 days then there will be no Wealth Tax levied.
2.Rental Income from Inherited property
An Australian NRI can rent out his property in India and this rental income is transferred to the NRE or NRO Account of the NRI. Since the rental income is earned in India, the NRI in Australia has to pay tax on this income. The rent payer deducts this tax from the rent by obtaining a TAN will deduct the TDS (Tax deducted at Source). The TDS deducted is at the rate of 30% from the amount to be paid as rent.
The rental income will also be subject to taxation in Australia as well. The resident has to declare the rental income Australia while filing for the Income-tax returns. The resident will be able to claim credit for the taxes he has paid in India.
3.Sell of Inherited property
An NRI in Australia is eligible to sell his inherited property to either an Indian resident or an NRI in a different country or a PIO (Person of Indian Origin). In the case of the NRI willing to sell an agricultural land of the farm, he can sell this to only an Indian resident.
If the property is being sold after 3 years of the inheritance of property, then it is considered to be a long-term capital gain and the NRI has to pay a tax of 20% of the amount of the long-term capital gain. However, if the property is being sold before 3 years of inheritance of the property then it is considered to be a short-term capital gain and the NRI will be liable for the payment of a tax based on his income tax slab.
In the case of Indian property inherited by an NRI in Australia, permission is available for the NRI to repatriate the proceedings of sale of the property. The amount of repatriation should not be more than $ 1million in each financial year. For this repatriation, the NRI must be able to produce documentary evidence which should support the inheritance. The proceeding of the repatriation has to be credited into the NRO Account.
If an NRI in Australia is selling his inherited property in India, then he is eligible to avail tax exemptions according to Section 54, 54EC and 54F of the Income Tax Act,1 961.
Under Section 54/54EC/54Fof the Income Tax Act, 1961 an Australian NRI can claim tax exemption if the capital gains are invested further. If an NRI in Australia is making an investment into a residential property, he can claim the tax exemption under Section 54 and Section 54F. To claim an exemption under Section 54EC, the NRI has to make the investment in NHAI bonds or REC bonds.
Hence, the tax implications associated with the inheritance of property by NRIs in Australia are quite simple. NRIs in Australia inheriting properties in India should know in detail about these implications and make tax payments accordingly.