Published 9 May 2026
The exemption of inheritance from clause (x) of sub-section (2) of section 56 of the Income-tax Act, 1961, the cost-of-acquisition pass-through under section 49(1), the post-inheritance capital-gain exposure on subsequent sale, the Foreign Exchange Management Act inheritance regulations, and the cross-border succession framework
Taxpayer Brief
Inheritance is a common but emotionally and legally fraught moment for the Non-Resident Indian and the foreign citizen with Indian roots. The good news -- India does not levy any inheritance tax. Estate Duty was abolished by the Estate Duty (Abolition) Act, 1985, and clause (x) of sub-section (2) of section 56 specifically excludes property received under a will or by inheritance from the gift-in-kind charge. The complication starts later -- when the heir, now Non-Resident, sells the inherited property and faces the capital-gain calculation, the Tax Deducted at Source machinery, the repatriation cap, and (potentially) the Black Money Act disclosure obligation in the heir's country of residence.
1. The Indian Position -- No Inheritance Tax
Question | Indian Tax Position |
|---|---|
Is inheritance taxable in the hands of the Non-Resident heir? | No. Clause (x) of sub-section (2) of section 56 expressly excludes property received under a will or by inheritance from the gift-in-kind charge. |
Is there any Indian estate duty? | No. Estate Duty was abolished in 1985. |
Is the foreign citizen heir treated differently? | No -- the Indian inheritance tax position applies regardless of the heir's citizenship or residence. |
Is the inheritance reported in the Indian Income Tax Return? | Disclose in Schedule EI (Exempt Income) for transparency, though there is no statutory requirement. |
Is any Indian filing required at the moment of inheritance? | Probate from the appropriate civil court (or letter of administration if intestate); transfer of title via inheritance to the heir's name in land records. |
2. The Cost-of-Acquisition Pass-Through -- Section 49(1)
Sub-section (1) of section 49 of the Income-tax Act, 1961 prescribes that where capital asset becomes the property of an assessee by way of inheritance under a will, succession, or distribution of capital assets on the partition of a Hindu Undivided Family, the cost of acquisition of the asset for the heir is the cost for which the previous owner acquired it. The holding period also begins from the date of acquisition by the previous owner -- under the Explanation 1 to clause (b) of sub-section (1) of section 2(42A).
Aspect | Heir's Position |
|---|---|
Cost of acquisition | Cost for which the previous owner acquired the asset (as adjusted for any improvements) |
Date of acquisition for holding-period purposes | Date on which the previous owner acquired the asset |
Indexation base year (for property pre 23 July 2024 with grandfathering choice) | 1 April 2001 if the asset was acquired before that date, else the date of acquisition by the previous owner |
Step-up to market value | Not available in India -- there is no inheritance step-up |
The carry-over cost surprise An ancestor purchased a Pune flat in 1985 for ₹3 lakh. The Non-Resident Indian heir inherited it in 2024 (when its market value was ₹2 crore). Heir sells in March 2026 for ₹2.2 crore. Long-Term Capital Gain = ₹2.2 crore minus ₹3 lakh (carryover cost from 1985) = ₹2.17 crore. With the 1 April 2001 fair-market-value substitution and indexation under the pre-23 July 2024 regime (or the 12.5% without indexation post 23 July 2024 alternative), the gain is substantial. Many Non-Resident Indian heirs assume the inheritance "step-up" works as in the United States or United Kingdom -- it does not. |
3. Selling the Inherited Property as a Non-Resident Indian
When the Non-Resident Indian heir sells the inherited property, the entire framework discussed in NRI-07 applies -- section 195 Tax Deducted at Source on the consideration; section 54 / 54EC / 54F reinvestment exemption options; Form 13 application for lower deduction; Form 15CA / 15CB for repatriation of proceeds. The carryover cost from the previous owner determines the capital-gain quantum.
Inherited Asset | Cost-of-Acquisition Position | Holding-Period Position |
|---|---|---|
Property held by parent for 30 years; market value at inheritance ₹2 crore | Cost = original purchase price (e.g., ₹5 lakh); choice to substitute fair market value as on 1 April 2001 if pre-2001 acquisition | Long-term -- holding period starts from parent's acquisition date |
Listed shares held in parent's demat | Parent's cost of acquisition | Long-term if parent held for more than 12 months |
Gold and jewellery | Parent's purchase cost; if pre-2001, fair market value as on 1 April 2001 | Long-term if held more than 36 months collectively |
Mutual fund units | Parent's purchase cost | Long-term as per fund category and acquisition date relative to 23 July 2024 / 1 April 2023 |
4. The Foreign Exchange Management Act Inheritance Regulations
Under Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018 read with the Reserve Bank of India Master Direction on Acquisition and Transfer of Immovable Property in India by Non-Residents, a Non-Resident Indian or foreign citizen may acquire immovable property in India by way of inheritance from any person who was a Resident of India at the time of the will / death. No specific Reserve Bank of India approval is required.
Heir Profile | Right to Inherit Indian Property | Reserve Bank of India Approval |
|---|---|---|
Non-Resident Indian (Indian citizen) | Full right to inherit any property | Not required |
Person of Indian Origin / Overseas Citizen of India card holder | Full right to inherit any property | Not required |
Foreign citizen (no Indian origin) | Generally permitted to inherit but specific permissions may be required for agricultural land / plantation / farmhouse | Specific permission required for certain restricted categories |
Heir of Pakistani / Bangladeshi / Sri Lankan / Afghan / Chinese / Iranian / Nepalese / Bhutanese citizen | Specific Reserve Bank of India permission required regardless of inheritance route | Required |
5. Repatriation of Inheritance Proceeds
Under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, a Non-Resident Indian or foreign citizen heir who has inherited Indian property may remit the sale proceeds (or assets in lieu) up to United States Dollar one million per financial year -- the same cap that applies to other Non-Resident Ordinary outflows. The Reserve Bank of India can grant higher limits in specific cases (large estates, multiple heirs sharing limited annual quota) on a case-by-case basis.
The five-year-aggregate Reserve Bank of India relaxation Where the inheritance value substantially exceeds the United States Dollar one million per year cap, the Authorised Dealer bank can submit a representation to the Reserve Bank of India for a higher limit -- typically substantiated by the probate document, estate valuation, and Chartered Accountant certificate. Approval is discretionary but commonly granted for genuine cases. |
6. The Foreign-Country Reporting Layer
Indian inheritance is exempt in India but the heir's country of residence may impose its own reporting and tax obligations. United States residents must report inheritance above United States Dollar one hundred thousand on Form 3520; United States citizen heirs report on Form 706 if total estate exceeds the unified credit. United Kingdom residents face Inheritance Tax on the Indian assets as part of the Worldwide Estate of the deceased if the deceased was United Kingdom-domiciled (though this rarely applies to Indian Resident deceased). Canadian residents face deemed-disposition rules. Australian residents face capital-gain rules on subsequent disposal.
Heir Country of Residence | Reporting Obligation in the Heir's Country |
|---|---|
United States | Form 3520 within filing deadline of return for the year of inheritance if foreign inheritance exceeds USD 100,000 per donor |
United Kingdom | Inheritance Tax in United Kingdom only if deceased was United Kingdom-domiciled; rare for Indian Resident deceased |
Canada | Deemed-disposition rule on heir; subsequent gain in Canada |
Australia | Capital-gain reset to market value at inheritance under inherited-asset rules |
Singapore | No inheritance tax on Singapore residents post 2008 |
United Arab Emirates | No personal income-tax / inheritance tax |
BharatTax NRI Compliance Tool Is your Non-Resident status reflected in the income-tax department's Permanent Account Number database, and is your Permanent Account Number-Aadhaar status correctly tagged as exempt? Use the NRI Compliance Tool at itr.bharattax.co to verify, update residential status on the e-filing portal, and pre-validate your Non-Resident External or Non-Resident Ordinary bank account for any refund. |
7. Practical Inheritance Checklist
- Obtain probate / letter of administration from the appropriate Indian civil court.
- Update mutation in land records to reflect heir's name.
- If the inherited property is being sold, plan the section 195 Tax Deducted at Source and Form 13 application three to four months in advance.
- Compute capital gain using the previous owner's cost (or 1 April 2001 fair market value if pre-2001 acquisition).
- Consider section 54 / 54EC / 54F reinvestment to defer or eliminate capital-gain tax.
- Disclose inheritance in Schedule EI of the Indian Income Tax Return for transparency.
- File the foreign-country inheritance reporting forms -- Form 3520 in the United States, etc.
- Initiate Foreign Exchange Management Act repatriation under Form 15CA / 15CB; if exceeding the United States Dollar one million per year cap, apply to the Reserve Bank of India for special permission.
8. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: NRI inheritance and tax-free transfer Section 56(2)(x) of the Income-tax Act, 1961 includes 'amount received under a will or by way of inheritance' in the list of receipts NOT taxed as Other Sources -- inheritance is tax-free. The Bombay High Court in [VERIFY: confirm High Court ruling on NRI inheritance] applied the tax-free-inheritance principle. The Income Tax Appellate Tribunal Mumbai in [VERIFY: confirm Tribunal citation on the cost-step-up for inherited property] confirmed that the cost basis for inherited property is the original cost to the deceased, as governed by section 49(1). [VERIFY: cross-check specific Tribunal citations in the BharatTax case-law database.] |
Prospective Interpretation -- The cost-basis-and-repatriation architecture Two unsettled interpretive issues. (i) Treatment of inherited Indian property repatriated by the NRI heir -- the United States Dollar one million per year cap under the FEMA repatriation route applies. (ii) Treatment of inherited foreign property under Schedule FA -- the Resident heir must disclose the inherited foreign property in Schedule FA from the year of inheritance. The BharatTax case-law database should monitor emerging Tribunal positions. [VERIFY: confirm Tribunal decisions emerging on the inheritance / repatriation framework.] |
9. Key Takeaways
- India does not levy inheritance tax / estate duty -- abolished by the Estate Duty (Abolition) Act, 1985. Inheritance is not income under clause (x) of sub-section (2) of section 56.
- Sub-section (1) of section 49 -- the heir's cost of acquisition is the previous owner's cost; no step-up to market value at inheritance.
- Holding period for capital-gain purposes runs from the previous owner's acquisition -- typically Long-Term.
- Subsequent sale by the Non-Resident Indian heir attracts the full section 195 Tax Deducted at Source / section 54 / 54EC / 54F / Form 13 / repatriation framework.
- Foreign Exchange Management Act allows Non-Resident Indians and foreign citizens to inherit Indian property -- specific Reserve Bank of India permission required for restricted citizenships and certain asset classes.
- Repatriation capped at United States Dollar one million per year; higher limits available on case-by-case Reserve Bank of India application.
- Foreign-country reporting -- Form 3520 in the United States, equivalents elsewhere -- separate from Indian filing.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.