Understanding Inheritance Tax in India for NRIs is essential for families who hold property or assets across borders. Many Non-Resident Indians feel confused because they rely on outdated information, contradictory online sources, and long-standing myths. Much of this confusion comes from the old estate duty system that India once used. The government abolished estate duty decades ago, yet many people still repeat the rumour that “inheritance tax applies to NRI heirs.”

This article explains the legal position with clarity, accuracy, and simple language. It shows what Indian law actually says, highlights what NRIs must know about inheriting property or assets, and describes how tax rules apply when they sell or transfer inherited property later.

The goal is to separate myths from verified legal facts based on Indian statutes, government rules, and jurisprudence.

Understanding the Legal Context of Inheritance in India

Before examining taxation, it is important to understand how inheritance is treated under Indian law.

No Inheritance Tax or Estate Duty in India

India does not levy inheritance tax. Estate duty, which resembled an inheritance tax, existed until 1985, but was abolished under the Estate Duty Act (Repeal) Act, 1985. Since then, India has not reintroduced any tax on the mere act of inheriting property or wealth.

This applies equally to:

  • Indian residents

  • NRIs

  • OCIs

  • PIOs

Therefore, receiving inherited property—whether land, house, money, or shares—does not trigger any tax liability.

Inheritance Governed by Personal Law

What governs succession is:

  • Hindu Succession Act, 1956 (for Hindus, Buddhists, Jains, Sikhs)

  • Indian Succession Act, 1925 (for Christians, Parsis, and those outside personal laws)

  • Muslim Personal Law (Shariat) Application Act, 1937 (for Muslims)

These laws determine who inherits, not whether a tax is payable.

Section 1: Myths About Inheritance Tax in India for NRIs

Due to old misconceptions and international comparisons, certain myths persist. Here are the most common ones.

Myth 1: “NRIs must pay inheritance tax in India.”

Fact: False. No inheritance tax exists in India. The legal heir—resident or NRI—does not pay tax on receiving property, gold, cash, or bank deposits.

Myth 2: “Large inherited estates are taxed separately for NRIs.”

Fact: India does not tax estates, regardless of the asset size.

Myth 3: “Inheritance becomes taxable if the property is transferred abroad.”

Fact: Only income or gains generated later may be taxable. The inheritance itself is tax-free.

Myth 4: “NRIs must pay GST or stamp duty on inheritance.”

Fact: There is no GST on inheritance.
However, stamp duty applies only when transferring property by gift or sale, not on inheritance. Mutation of property records after death typically involves only nominal administrative fees in most states.

Section 2: What the Law Actually Says — Legal Facts for NRIs

Fact 1: Inheritance Is Fully Exempt from Income Tax in India

Under the Income Tax Act, 1961, inheritance is not treated as income.
Section 56(2)(x) specifically exempts property received “under a will or by inheritance” from taxation.

Thus:

  • No income tax

  • No gift tax

  • No wealth tax (abolished in 2015)

Fact 2: Tax Applies Only When the NRI Sells the Inherited Asset

What is taxable is capital gains, not the inheritance itself.

Relevant sections:

  • Section 45 – Capital gains chargeability

  • Section 48 – Computation of capital gains

  • Section 55 – Determination of cost of acquisition for inherited assets

When an NRI sells inherited property, tax applies on the capital gains, based on the original owner’s acquisition cost, not the date of inheritance.

Fact 3: TDS Applies to NRIs on Sale of Inherited Property

Under Section 195, buyers must deduct TDS when paying an NRI seller.
Typical rates:

  • 20% on long-term capital gains (indexed)

  • 30% on short-term capital gains

Plus surcharge and cess as applicable.

Fact 4: NRIs Can Claim Indexation Benefits

NRIs get indexation for long-term capital gains if the inherited property was held for more than 24 months (for land/buildings).

Fact 5: Repatriation of Sale Proceeds Is Allowed Legally

Under RBI’s FEMA guidelines, NRIs can repatriate sale proceeds of inherited property up to USD 1 million per financial year, subject to documentation such as:

  • Proof of inheritance

  • Tax paid challans

  • Chartered accountant’s Form 15CB

  • Form 15CA submission

This is a compliance requirement, not a tax.

Fact 6: Wealth Tax Is Abolished

As per the Finance Act, 2015, wealth tax no longer exists.
Inherited assets are not taxed annually as wealth.

Section 3: When Taxes Do Apply to NRIs — Real Scenarios

While there is no inheritance tax, certain tax events arise later, depending on how the inherited asset is used.

1. Tax on Sale of Inherited Property by an NRI

This is the most common tax event.

Tax applies only to:

  • Capital gains on sale

  • Not the inherited asset itself

Determining capital gains:
Cost = original owner’s purchase price + improvement cost + indexation
Sale price – indexed cost = capital gains

2. Rental Income Earned from the Inherited Property

Rental income is taxable under Income from House Property.

NRIs pay TDS at:

  • 30% on rent received

The tenant must deduct TDS and deposit it under Section 195.

NRIs can claim:

  • Standard deduction @ 30%

  • Municipal taxes

  • Interest on home loan

3. Capital Gains on Sale of Inherited Shares or Securities

NRIs inheriting shares or mutual funds pay capital gains tax when selling them.
Tax rates depend on:

  • Listed vs. unlisted shares

  • Long-term vs. short-term holding

Again, inheritance is tax-free but sale is taxable.

Section 4: Why Information About Inheritance Tax Confuses NRIs

Reason 1: Many Countries Have Estate Taxes

Countries like the US, UK, Canada, Japan, and France levy inheritance or estate taxes.
NRIs living abroad often assume Indian rules are similar, which causes misunderstanding.

Reason 2: Obsolete Articles Continue to Circulate

Outdated information referencing estate duty before 1985 still circulates online.

Reason 3: Misinterpretation of Gift Tax Rules

Gift tax was abolished in 1998, and exemptions under the Income Tax Act sometimes get mistaken for inheritance tax.

Reason 4: Complexities in Repatriation Procedures

Some interpret RBI repatriation guidelines as a form of inheritance taxation. They are not.

Section 5: Legal References Relevant to NRI Inheritance Tax Rules

Although inheritance tax does not exist, several Indian laws impact NRI heirs:

1. Income Tax Act, 1961

Key provisions applicable:

  • Section 56(2)(x) – exemption for inheritance

  • Section 45, 48, 55 – capital gains on inherited assets

  • Section 195 – TDS obligations for NRI sellers

  • Section 24 – deductions on rental income

2. FEMA (Foreign Exchange Management Act), 1999

RBI guidelines govern:

  • Repatriation of property sale proceeds

  • Acquisition of inherited property by NRIs

  • Transfer of inherited assets outside India

3. Personal Laws Governing Succession

  • Hindu Succession Act, 1956

  • Muslim Personal Law (Shariat) Application Act, 1937

  • Indian Succession Act, 1925

4. State Stamp Duty Laws

Applicable only for transfers such as gifts—not inheritance.

Section 6: Practical Guidance for NRIs Inheriting Property in India

Though no tax is payable, NRIs must follow proper legal and procedural steps.

Step 1: Obtain the Death Certificate

Required for all inheritance processes.

Step 2: Collect Proof of Relationship

Examples:

  • Passport

  • Birth certificate

  • Aadhaar (if available)

Step 3: Establish Ownership Through:

  • Will (if available)

  • Probate (if required in that state)

  • Legal heir certificate

  • Succession certificate (for movable assets)

Step 4: Mutate Property Records

Land and property records must be updated with revenue authorities or municipal bodies.

Step 5: Maintain Documentation for Future Tax Compliance

Especially if the asset will be sold later.

Step 6: Understand Tax Rules on Sale

Capital gains apply only if the inherited asset is sold—not at inheritance.

Section 7: Common Questions About Inheritance Tax in India for NRIs (FAQ)

1. Is there any inheritance tax in India for NRIs?

No. India does not levy inheritance tax on any person, including NRIs.

2. Do NRIs pay tax when inheriting property?

No. Inheritance is exempt under Section 56(2)(x) of the Income Tax Act.

3. Are inherited properties taxable when sold by NRIs?

Yes. Capital gains tax applies on sale, not on inheritance.

4. How is capital gains tax calculated for NRIs on inherited property?

Using the original owner’s purchase cost, indexed to inflation as per Section 48.

5. Is mutation of inherited property taxable?

No. Mutation involves administrative fees, not taxes.

6. Do NRIs pay tax when repatriating sale proceeds?

No separate tax. Only capital gains tax applies, and proceeds can be repatriated after compliance.

7. Is stamp duty payable on inheritance?

No. Stamp duty applies on gifts or sales, not inheritance.

8. Do NRIs need a succession certificate for inherited property?

A succession certificate applies mainly to movable assets like bank accounts, deposits, and shares.
Probate may be required for a Will, depending on state laws.

9. Do NRIs inheriting foreign assets from parents in India get taxed?

India taxes only the income that arises within its borders. The laws of the foreign country, not India, control how foreign inheritance works.

10. Can India reintroduce inheritance tax in the future?

As of now, no proposal exists in legislation. Any future change would need a parliamentary act.

Section 8: Key Takeaways — Myths vs. Legal Facts

  • India does not have inheritance tax for residents or NRIs.

  • Estate duty was abolished in 1985.

  • Inheritance of property, money, gold, or shares is fully tax-free.

  • Tax applies only on income generated later, such as:

    • Capital gains from sale

    • Rental income

    • Interest income

  • FEMA rules govern repatriation, not taxation.

  • Personal laws govern who inherits—not tax laws.

  • NRIs must maintain documentation for future compliance.

Understanding Inheritance Tax in India for NRIs requires clarity and factual accuracy. India does not impose any tax on inherited assets, and receiving property or money from family members is entirely exempt under Indian law. The only taxation relevant to NRIs applies when the inherited asset generates income—such as rental income—or when the NRI sells the property, which triggers capital gains tax.

By relying on correct legal principles, NRIs can manage inherited assets with confidence, avoid misinformation, and comply with Indian tax and procedural rules without unnecessary confusion.