Tax Implications in India for NRIs on Receiving Inheritances
Neha Navaneeth
Marketing & Content Associate
Sep 16, 2025
Tax implications for NRIs on inherited assets in India are nuanced. It leads to misconceptions, misunderstandings and unnecessary taxation-related burdens for many living outside India. In addition, inaccurate tax treatment of income earned from inherited assets can lead to heavy penalties and other complications.
This article discusses everything you need to know about NRI inheritance tax India.
Is inheritance taxable in India?
India abolished inheritance tax in 1985. So, the estate of a deceased person is not taxed in India before distribution to legal heirs. In addition, transfer of assets to legal heirs, including ordinary Indian citizens and NRIs living abroad is entirely tax-free.
In this context, it is critical to understand that NRIs must possess verifiable legal heir certificates to establish the inheritance status of the transferred property. Otherwise, such a transfer of property will be considered a gift and taxed under the Income Tax Act.
Difference between inheritance and gift:
Inheritance | Gift |
Transfer of an asset on death of the asset’s owner. Can happen through a will or through intestacy (in absence of a valid will). | Transfer of assets from a living person to another without any exchange of money or any expectations. |
Inheritance is not taxable in India since 1985. | A gift above Rs 50,000 per year from a non-relative person can be taxable as income from other sources. |
Governed by the law of succession and the income tax act. | Governed by Section 56(2)(x) of the income tax act. |
All types of assets inherited from relative and non-relative is tax-free. | Gifts from only from specific relatives (e.g., parents, spouses, siblings) are tax free. |
However, despite the absence of inheritance tax, income from inherited assets is not free of tax implications for NRIs and ordinary citizens as well.
Tax implications of income from inherited assets
It is essential to understand that while an inheritance itself is tax-free, any income from that inherited asset is taxable in India.
For understanding this “indirect” tax implications of income from inherited assets for NRIs, we can have the following broad categories:
Capital gains tax on inherited property sold in India
Tax on rental income from inherited property
Tax on interest and dividend income from inherited financial assets
TDS deducted by buyers of NRI inherited property in India
Capital gains tax on the sale of inherited assets
This is the most significant tax implication for NRI inheritance tax India. It is applicable only when an NRI sells the inherited movable or immovable property. The capital gain is calculated based on the difference between sales prices and costs of acquisition. The cost of acquisition can be indexed for inflation adjustment.
Depending on the holding period of the asset and the asset classes, capital gains can be categorized into,
Short-term capital gains - If a property is held for more than 24 months, its treated as Long-term capital gains (LTCG) and taxed at 20% with indexation
Long-term capital gains - If that property sold earlier, the profit is treated as short-term capital gains (STCG) and taxed at the individual’s income tax slab rate.
TDS is also applicable on sales of inherited properties by NRIs. Buyers must deduct 20% (plus cess/surcharge) before paying the seller. However, NRIs can claim tax refund by filing tax return if their actual income tax liability is lower.
Example of indexation for calculating capital gains :
If you sell a property bought for ₹10 lakh in 2005 for ₹80 lakh in 2024, indexation pushes the cost to ₹31 lakh. Your taxable LTCG is ₹49 lakh, and tax liability will be ₹9.8 lakh.
Tax on rental income from inherited property
The inherited property may generate rent, or an NRI may choose to rent out an inherited property. In both cases, the income from the rent will be considered as ‘income from house property’ in the tax return of the NRI taxpayer. If property is co-owned, rent is split in proportion to ownership.
How to calculate the tax liability of income from house property?
Gross annual rent - NRIs face a 31.2% TDS deduction upfront by tenants. However, actual tax liability can be much lower once the following deductions are claimed.
30% standard deductions for repair and maintenance expenses
Municipal taxes paid for the property
Home loan interest linked to the property (a maximum limit of Rs 2 lakh per year)
Pro Tip: Many NRIs skip filing because “tax is already deducted.” But filing ensures you don’t overpay and also keeps your tax records clean for FEMA/DTAA claims.
Tax on income from inherited financial assets
Tax implications for interest and dividend earnings from inherited financial assets vary with asset classes.
Interest from bank deposits - TDS is applicable at the time of payment of interest income to NRIs. Interest earned from Non-Resident Ordinary (NRO) is fully taxable along with the levy of TDS. Comparatively, interest earned from NRE and FCNR accounts is tax-free subject to FEMA limits on reinvestmentDividend income - The standard TDS applicable to dividend payments to NRIs is 20%.
Mutual funds & shares: Taxed as per capital gains rules when sold.
Bonds, FDs, Insurance payouts: Taxation depends on instrument type; most follow TDS + slab treatment.
TDS on NRI inherited property in India
NRIs are not tax residents of India. So, any type of payments to NRI taxpayers are subject to withholding tax (e.g., TDS). It is charged to avoid complications in tax compliance, unnecessary tax burden and tax evasion.
Withholding (TDS) tax implications for NRIs on inherited assets:
Type of income | Applicable TDS rates (as of FY2025) |
Rental Income | 31.2% |
Sale of property | 20% |
Dividend income | 20% |
Interest income | 31.2% |
An NRI can claim application of withholding tax at a lower rate (5% or 15%) if the actual tax liability of an NRI is much less than the applicable TDS rates. For that, the NRI taxpayer needs to apply to the respective Indian tax authority following the due process.
DTAA and international tax implications
NRIs, being tax residents of foreign countries, are subject to the tax laws of the respective countries they are temporarily residing in. This raises a concern of double taxation of NRIs’ global incomes—once in the country of origin of an income, and again in the country of tax residency.
To avoid such tax incidence, India maintains Double Taxation Avoidance Treaties (DTAA) with over 90 countries. DTAAs are bilateral agreements that pre-define tax rights of countries on income earned by their tax residents. These treaties allow relief from double taxation through,
Exemptions
Foreign tax credit
DTAAs can have significant effects on tax implications for NRIs on inherited assets.
FEMA rules for repatriation of sales proceeds
NRIs planning to transfer inherited financial assets or sales proceeds of inherited assets out of India must be careful about the Foreign Exchange Management Act (FEMA). It is a strictly administered Act, and any non-compliance may lead to heavy penalties and punishment. As of FY2025, FEMA allows NRIs to transfer up to USD 1 million every financial year from their NRO accounts. The NRI and non-NRI remitters transferring taxable remittances exceeding Rs 5 lakh in a financial year must fully disclose through Form 15CA and Form 15CB.
Reporting requirements for NRIs
NRIs who have inherited movable or immovable assets in India should submit the following information/documentation to their respective income tax AOs for tax relief and compliance.
Legal heir certificate
Original purchase documents
Power of Attorney (PoA) to authorize a representative handling tax administration on behalf of the taxpayer
Tax residency certificate
Form 10F for claiming DTAA benefits
Form 15C and 15 CB for remittance of funds to a foreign country
FAQs
Are earnings from inherited assets taxable in India for an NRI?
Yes. Earning from an inherited asset is taxable for NRIs. Examples are capital gains tax, tax on rental income, interest and dividend income.
What is the capital gains tax on inherited property for NRIs?
When NRIs sell their inherited property, capital gains tax is applied on the difference between the sales price of the asset and the indexed cost of acquisition.
When are the FEMA rules for NRI inheritance applicable?
FEMA rules are applicable when NRIs transfer earnings from inherited property out of India or from their NRO accounts to FCNR accounts.
