When it comes to gifting and inheriting properties, both NRIs (Non-Resident Indians) and resident Indians often find themselves tangled in a web of taxation and FEMA (Foreign Exchange Management Act) laws. It’s easy to feel overwhelmed by the numerous dos and don’ts. But fear not! We’ve partnered with the talented CA Danush Bolar, a specialist in FEMA law, to break down the complexities and clarify what you need to know.

Danush Bolar is a practicing chartered accountant and a partner at Nitin Jetti & Co in Mango. With years of experience working with NRIs, Danush has helped many navigate the tricky waters of FEMA law. 

The Basics of FEMA and Property Transfer

Before we dive into the nitty-gritty, let’s take a quick tour of FEMA. This legislation regulates cross-border transactions in India, ensuring they align with the country’s foreign exchange policies. So, whether you’re a resident sending money abroad or a non-resident acquiring property in India, it’s crucial to understand FEMA regulations.

Can Indian Residents Gift Property to NRIs or OCIs?

Yes! Indian residents can legally gift immovable property to NRIs (Non-Resident Indians) and OCIs (Overseas Citizens of India). The rules under FEMA make this clear: there are no restrictions on the value or number of properties gifted, but there’s a catch. The donor must be a relative as defined by the Companies Act, which includes spouses, parents, children, siblings, and their spouses.

Inheriting Property: What’s the Law?

Now, let’s talk about inheritance. NRIs and OCIs can inherit property in India without any restrictions. For instance, if an Indian resident gifts their Mangalore house to their NRI child, that child can legally inherit the property. However, if the property was originally acquired by a non-resident, we need to ensure it complies with the law applicable at the time of acquisition.

Key Points About Gifting and Inheriting Property

1. Restrictions on Agricultural Land: While NRIs and OCIs can inherit agricultural land, they must sell it to Indian residents only. For example, if an NRI inherits a family-owned farmhouse, they can manage it but must sell it to a resident Indian if they choose to part with it.
2. Repatriating Sale Proceeds: If an NRI sells inherited property, they can repatriate up to USD 1 million per financial year without needing additional approval from the Reserve Bank of India (RBI). Selling a house worth 10 crores? You can transfer that money, but remember the annual cap!
3. Foreign Nationals and Inheritance: Foreign nationals can inherit property in India, but they must obtain RBI approval to retain it. If they want to sell, no RBI approval is needed if they’re selling to an Indian resident, but they must seek approval if selling to another foreign national.

The PIO and OCI Connection

Since 2018, the PIO (Persons of Indian Origin) concept has been phased out in terms of acquiring property. If you hold a PIO card, you’ll need to convert it to an OCI card to acquire immovable property. However, managing bank accounts as a PIO is still permissible.

Gifts from Residents to NRIs and Foreign Nationals

Resident Indians can gift property to NRIs or foreign citizens. Just keep in mind the aforementioned relative definitions to ensure compliance with FEMA regulations.

What About Certain Nationalities?

Some neighboring countries have restrictions when it comes to acquiring property in India. Citizens from Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Hong Kong, Macau, and North Korea require prior RBI approval to purchase property, regardless of their resident status. However, OCI cardholders from these nations can buy property without these restrictions.

Handling Inherited Property Abroad

If a resident Indian inherits property abroad, they can retain it without selling, as long as it was acquired in compliance with FEMA regulations. However, if the property is inherited from a non-resident, they must sell it and repatriate the funds.

Returning NRIs: A Special Case

A returning NRI can gift or inherit property acquired abroad while they were still a non-resident. They can keep the property and decide when to sell it without any restrictions under FEMA law.

Conclusion: Seek Expert Guidance!

As you can see, the landscape of gifting and inheritance is intricate, with various laws and regulations to consider. If you’re facing a similar situation, it’s always wise to consult a FEMA expert. Being informed and compliant is essential to navigating this complex territory.

To our readers, we hope this article clears up some of the fog surrounding property gifting and inheritance in India. Always remember: when in doubt, consult an expert!