Inheriting Property in Bangalore as a Foreign National

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

When a person who is a citizen of a foreign country (having renounced Indian citizenship and not holding OCI status, or having been born abroad and never holding Indian citizenship) inherited a Bangalore property from their Indian citizen parent through the parent's will or intestate succession, the inheritance itself is generally permitted under FEMA's provisions for inheritance by non-residents -- but the foreign national who now holds Indian immovable property as a non-resident faces FEMA compliance obligations for reporting the inheritance and specific restrictions on how they can deal with the property including selling it and repatriating the sale proceeds abroad.

Is a Foreign National Permitted to Inherit Indian Property?

FEMA's Schedule III to the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 permits a person resident outside India (whether an NRI, OCI, or a foreign national with no Indian connection) to acquire immovable property in India by way of inheritance from a person who was resident in India. The inheritance from an Indian citizen parent is therefore permitted without any RBI approval. However, the foreign national who inherits the property: cannot use the inherited property for commercial purposes without RBI approval; faces FEMA restrictions when selling the property; and must use a specific repatriation route if they want to take the sale proceeds out of India.

What Is the FEMA Compliance Process for a Foreign National Selling Inherited Indian Property?

• Step 1: Obtain probate of the parent's will (or letters of administration if there was no will) from the District Court in Bangalore -- confirming the foreign national's right to the inherited property.
• Step 2: Report the inheritance to the RBI within the specified period -- filing the Form IPI-7 (for foreign nationals inheriting Indian property from an Indian resident) confirming the inheritance details.
• Step 3: Complete the Khata mutation in the foreign national's name at BBMP -- presenting the death certificate, the probate or succession certificate and the property's existing title documents.
• Step 4: When selling the property, route the sale proceeds through an NRO (Non-Resident Ordinary) account in India -- the NRO account receives the rupee sale proceeds.
• Step 5: For repatriation of the sale proceeds abroad, obtain Form 15CA/15CB from a CA confirming the income tax compliance (TDS paid by the buyer, capital gains declared) and file the RBI repatriation application if the amount exceeds the permitted limit.

Q1. What is an NRO account and why must the sale proceeds go through it?

An NRO (Non-Resident Ordinary) account is an Indian bank account for non-resident persons to manage their Indian-source income -- rental income, Indian pension, Indian inheritance proceeds and property sale proceeds. The NRO account holds Indian rupees but has restricted repatriation -- only up to USD 1 million per financial year can be repatriated from the NRO account (subject to tax compliance). A foreign national who inherits Indian property must receive the sale proceeds in their NRO account and then apply for repatriation.

Q2. Does the foreign national need to obtain RBI permission before selling the inherited property?

For most foreign nationals inheriting from Indian citizen parents (other than Pakistani or Bangladeshi origin persons), no prior RBI permission is needed for the sale -- the sale is permitted under FEMA's general permission for disposal of inherited property. The RBI reporting (Form IPI-7 for the inheritance and the repatriation application for the proceeds) is post-facto compliance, not a prior approval requirement.

Q3. What TDS rate applies when a buyer purchases property from a foreign national seller?

When the seller is a non-resident (whether an NRI, OCI or foreign national), the buyer must deduct TDS at 20% on the long-term capital gains (if the property was held for more than 2 years) or at 30% on the short-term gains (if held for less than 2 years) -- or at the higher of 20% and 1% if the seller is uncertain about the holding period. The buyer deducts TDS and pays it to the government, providing the seller with Form 16A for the TDS certificate.

Q4. Does the foreign national pay income tax in India on the property sale?

Yes -- a non-resident seller who sells Indian immovable property is liable to pay Indian capital gains tax on the gains. Long-term capital gains (property held more than 2 years) are taxed at 20% with indexation. Short-term capital gains are taxed at the applicable slab rate. The foreign national must file an Indian income tax return for the year of the sale to declare the capital gains and claim any applicable exemptions (Section 54 reinvestment in another Indian property, if applicable).

Q5. Can the foreign national gift the inherited property to an Indian relative instead of selling it?

Yes -- a foreign national can gift inherited Indian property to an Indian resident relative (as defined in FEMA -- spouse, parent, sibling, child). The gift deed must be registered in India. The donee Indian resident then holds the property as an Indian resident owner with no FEMA restrictions. The gift is not a sale and the foreign national does not receive any proceeds.

Q6. What if the inherited property has an existing tenant -- does the foreign national need RBI approval to collect rent?

A foreign national who holds Indian property as a non-resident can receive rental income from the property -- the rent is Indian-source income that is received in the NRO account. No specific RBI approval is needed to collect rent from inherited property as a non-resident. The rental income is taxable in India -- TDS at 30% is deducted by the tenant on the rent paid to a non-resident landlord.

Q7. Can the foreign national appoint a POA holder in India to manage the inherited property?

Yes -- a foreign national can appoint an Indian resident as a Power of Attorney holder to manage the inherited property -- collecting rent, paying property tax, maintaining the property and eventually executing the sale deed. The POA must be apostillized (for Hague Convention countries) or legalised (for non-Convention countries) in the foreign national's country of residence before it is used in India.

Q8. What is Form IPI-7 and who must file it?

Form IPI-7 is the RBI form for non-residents who acquire immovable property in India by way of inheritance or gift. A foreign national who inherited Indian property from an Indian citizen parent must file Form IPI-7 with the RBI's Foreign Exchange Department within the specified period of the inheritance. The form discloses the inheritance details -- the property description, the inherited value and the inheritor's identity. Failure to file the form is a FEMA violation -- though it does not invalidate the inheritance.

Q9. What if the inherited property's value is below a certain threshold -- are simplified procedures available?

There is no specific low-value threshold below which FEMA compliance is waived -- the form filing and NRO account routing apply regardless of the property's value. However, the practical enforcement focus is on larger-value transactions. Simplified RBI procedures for certain standard transaction types (including inheritance and repatriation up to specified limits) reduce the paperwork burden for smaller transactions.

Q10. How does Legal Brigade assist foreign nationals with inherited Bangalore property?

Legal Brigade files the probate or succession certificate petition, manages the BBMP Khata mutation in the foreign national's name, files Form IPI-7 with the RBI, coordinates the property management through a local POA holder, manages the sale transaction with the appropriate TDS deduction by the buyer, assists with the capital gains tax return filing and coordinates the NRO account repatriation application with a FEMA-specialist CA.

You are a foreign national who inherited a Bangalore flat from your Indian citizen parent and are uncertain about the FEMA reporting, the sale process and how to repatriate the proceeds to your country? Legal Brigade files the RBI Form IPI-7, manages the sale and coordinates the NRO account repatriation.

WhatsApp → wa.me/8497029999

Frequently Asked Questions