Repatriation of Funds of Gifts and Inheritance Abroad

1. Repatriation of Funds of Gifts and Inheritance Abroad CA Ajit Kumar Jain

2. Agenda • Inheritance of property • Tax incidence at the time of inheritance and continue ownership • Tax incidence at the time of sale or gift of property • Inheritance Guide • Repatriation of sale proceeds • Documentation As per the International Migration Report 2017, published on 18 December 2017 by the United Nations (Department of Economic and Social Affairs), India is said to have the largest number of persons born in the country now living outside its borders – a staggering 17 million in 2017.

3. Resident, NRI and PIO

4. Bank Accounts NRIs / PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with an authoriseddealer:

5. Inheritance of Property

6. Inheritance by NRI from a Resident • A non-resident Indian (NRI) or person of Indian origin (PIO), can inherit any immovable property in India, whether it is residential or commercial. • They can even inherit agricultural land or a farmhouse, which they are otherwise not entitled to acquire by way of purchase • An NRI can inherit the property from anyone including his relatives. 

7. Inheritance by Resident • A resident Indian can inherent any commercial residential property from non-resident/PIO or from non-resident of Indian origin (not Citizen) • A NRI /PIO or non-resident of Indian origin can transfer agricultural land by inheritance only to Indian Citizen permanently residing in India

8. Inheritance by NRI from a NRI • The NRI or PIO can inherit property in India even from another NRI or PIO, subject to certain conditions. • The RBI’s permission is necessary, if the inheritance results in favor of a citizen of a foreign state, who is a resident outside India. • However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange law in force or FEMA regulations, applicable at the time of acquisition of the property. • A Citizen of India (non resident) can also inherent property from NRI • Aforeign national of non-Indian origin can inherit and hold immovable property in India from a person who was resident in India. However, a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan should seek specific approval of Reserve Bank

9. Summary Inheritance in India and the manner in which property of a deceased person is to be distributed is determined by the law of Succession, in the event that there is no will or equivalent document declaring the deceased persons intent.

10. Inheritance- Tax Incidence

11. Tax Incidence at the time of Inheritance • As Estate Duty was abolished long back, there is no tax incidence at the time of inheritance. • So, neither the representative of the deceased, nor the inheritor, have to pay any tax at the incidence of inheritance. • In case the same property is transferred by the person during his lifetime by way of a gift and the value of the property exceeds Rs 50,000, the recipient has to include the market value of the property received as gift in his total income, unless he is among the specified relatives of the donor.

12. Inheritance- Continue Ownership • The NRI or PIO can continue to retain the ownership of the property, or dispose it. • Even if the NRI decides to dispose of the property, there are certain tax implications for the period during which he retains the ownership of the property.  • If the NRI is a non-resident for the purpose of income tax laws, based on his stay in India, he will have to offer the income earned from the inherited property in India • In case the NRI decides to keep the inherited house property vacant, for the purpose of residing in it during his visit to India, he does not have to offer any income for taxation on such property.  • The NRI will have to file his income tax return in India, if his total income from all the sources including the rental and/or notional rental income exceeds the basic exemption limit.

13. Inheritance- Sale or Gift of property

14. Inheritance- Sale or Gift of property • Gift of Property • An NRI can either gift away the inherited property or sell the same and remit the money outside India. • There are certain restrictions on gifting of the property by an NRI. The NRI can gift the inherited property, only to a person who is resident in India or an NRI or PIO.  • In case of gift to a non-relative, the recipient will have to pay tax on he market value of the property that is received as a gift. • Sale of Property • An NRI can only sell residential or commercial property in India to a person residing in India or to an NRI or a PIO (Person of Indian Origin). • If the NRI wants to sell an inherited agricultural land, plantation land or a farmhouse, the same can be sold to a resident and citizen of India.  • If an NRI/PIO wants to sell his property to another NRI / PIO, he has to first obtain prior permission from the RBI.  • If the NRI owned or inherited the property, while he was a resident of India, he can deal with the property the way he wants, by means of sale, rent, transfer or gift.

15. Inheritance- Sale or Gift of property • Sale of Property • Foreign nationals of non-Indian origin, resident outside India, are not permitted to acquire any immovable property in India, unless such property is acquired by way of inheritance from a person who was resident in India. • Foreign nationals of non-Indian origin, who have acquired immovable property in India by way of inheritance, cannot sell or transfer such property, without prior permission of the RBI.

16. Inheritance- Sale or Gift of property • Capital Gain on sale of property • In case the property is sold by the NRI, the person who buys the property will have to deduct income tax under Section 195 of the Income Tax Act, on the taxable amount of capital gains at the rates applicable. • If the combined holding period of the inheritor and the deceased exceeded 24 months, the profits made on such sale shall qualify as long-term capital gains. • The NRI has the options to either pay the tax on such long-term capital gains at 20 per cent, or avail of the tax benefits under Section 54 and 54F, by investing in a new residential house.  • Alternatively, the NRI has an additional option to invest uptoRs 50 lakhs in a year, in capital gains bonds of specified institutions like Rural Electrification Corporation or National Highways Authority of India or Power Finance Corporation and Railway Finance Corporation, within specified time limits.

17. Inheritance- Guide

18. Inheritance – Guide • Step 1:Transfer title of inherited property to your name • You can do this by a process called 'mutation of revenue records.' You would need either a copy of the Will or in absence of a Will a Succession Certificate issued by the local court. • If will does not exsit, you will need to obtain succession certificate from the court. For this you will need to get together a bunch of documents such as death certificate of deceased, your birth certificate, copy of ration card and your bank statement. • Khata- This document shows the property assessment details with the relevant registration number of the property in the Municipal Corporation records. It shows the details of the property owner, property tax information etc. It is an important document for showing evidence of ownership of propert • Step 2:Get documents in order • Original Purchase agreement, Orignal share certificate agreement, Khata, NOC from society, copy of approved plan, PAN Card or Form 60 • Step 3:Identify your preferred sales method • Step 4: Complete the transaction • . • It is a misconception that the NRI will have to give complete power of attorney for all property related matters to someone in India. What the NRI would need to give is an 'Admit PoA.' The Admit PoA only says that while all the documents are executed by the owner, the PoA holder would represent him in the registration office because of the NRIs inability to be present physically

19. Repatriation of Sale Proceeds

20. Repatriation of Sale Proceeds • Remittance of Current Income • Remittance of current income like rent , dividend, pension, interest etc. of NRIs/PIO is freely allowed, on the basis of appropriate certification by a Chartered Accountant certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid / provided for. • Remittance of sale proceeds of Assets by NRI/PIO • An NRI can repatriate the sale proceeds up to one million dollars every year, without any approval from the RBI, provided taxes in India have been paid for the sale of such property. • However, special RBI approval will be needed, if the amount to be remitted exceeds one million. • This type of account doesn’t allow funds to be freely transferred out of the country. You’ll need to ask your bank to do this for you. You’ll also need the following documents: • Two copies of a Certificate of Information, also called Form 15CB, completed and signed by a chartered accountant; • Form 15CA (you’ll need information from Form 15CB to complete this); • Certificate in Form 15CB is not required when remittance does not exceed Rs 50,000 (single transaction) and Rs 2,50,000 (in total in a financial year). Only Form 15CA is has to be submitted in this case. • Form A2 (your bank should give you a copy of this); and • Application for foreign exchange (your bank should also give you a copy of this).

21. Repatriation of Sale Proceeds • Repatriation of Sale Proceeds by foreign national of non-Indian Origin • A foreign national of non-Indian origin who has inherited assets from a person resident in India or who is a widow of an Indian citizen who was resident in India, may remit an amount not exceeding USD one million, per financial year(April-March), on production of documentary evidence in support of acquisition /inheritance of assets, an undertaking by the remitter and certificate by a Chartered Accountant • Repatriation of sale proceeds of residential property purchased by NRIs/PIO out of foreign exchange • Repatriation of sale proceeds of residential property purchased by NRI/PIO is permitted to the extent of the amount paid for acquisition of immovable property in foreign exchange received through banking channels. The facility is restricted to not more than two such properties.

22. Taxation in USA • If, as a US resident, Green Card holder or citizen you inherited assets in India from an Indian citizen or resident, you will not be subject to inheritance tax. However, you will have to comply with certain reporting requirements. • Tax is levied only if the deceased individual was a US resident, citizen or Green Card holder • Income from the inherited assets such as interest, dividends or capital gains will be taxed in the US in the hands of the inheritor. • Remember that in the US, capital gain from sale of inherited property is calculated as the difference between sale proceeds and the fair market value of the property as on the date of death of the bequeathor. • The inheritor can avail the benefit of double taxation treaty and claim foreign tax credit for the taxes paid in India

23. Taxation in UK • The UK is currently the only country with whom India has an agreement (treaty) specifically on inheritance tax. • According to this treaty, whether you’ll need to pay UK inheritance tax will depend on where the deceased was domiciled at the time of death. • In the simplest of terms, your domicile is the country you think of as your permanent home. • You only have to pay UK inheritance tax if the deceased was domiciled in the UK at the time of death. This is currently set at 40%, but there are various exemptions and deductions you can make.

24. Gift

25. Gift • As per section 56(2)(x) of the ITA, any person receiving : • (i) a sum of money, • (ii) an immovable property or • (iii) any other “specified property” from any other person • without consideration or for a consideration less than the fair market value of such property (stamp duty value in case of immovable property) is liable to tax on such receipt, on the quantum of the gift exceeding Rupees 50,000. • However, certain receipts have been specifically exempted from these provisions. In case of individuals, receipt of either cash or immovable property or other specified property under the following circumstances is not to be subject to tax in the hands of the recipient: • Receipt from relatives; • Receipt on the occasion of marriage; • Receipt under a will; • Receipt by way of inheritance; • Receipt in contemplation of death of the donor; or • Receipt by a trust created solely for the benefit of the relative.

26. Gift • A resident individual can make a gift in Indian Rupees to his NRI/ PIO “close relatives” by way of a credit to their NRO account. • A resident individual can make gift in foreign currency to NRI/PIO by way of credit to their NRO account • However, all such money gifts, put together for the resident individual, should be within the Liberalized Remittance Scheme (‘LRS’) limit of USD 250,000 in any financial year. • Gift from NRI/PIO • As an NRI, if you make gifts to people in India, the onus of paying tax in India would be on the recipients. Recipients in India who are ‘relatives’ would not have to pay any tax while non-relatives would have to pay tax on gifts in excess of Rs 50,000. 

27. Gift • Meaning of relatives : • Parent • Spouse • Your and your spouse’s brothers and sisters • Brothers and sisters of your parents • Your lineal descendants (including spouses) • Lineal descendants (including spouses) of your spouse

28. Gift- Scenario *Value adopted by stamp duty authority for the purpose of stamp duty

29. Gift- To-dos • Always document keep the receipt of the gift and the gift certificates • If you are receiving a movable asset as a gift, ensure that the donor provides a signed and stamped gift deed . • If, immovable asset is gifted, it is important to ensure that the donor transfers the same in your name with a registration and a gift deed is obtained. • If you have loaned a friend or relative in excess of Rs50,000, and it had been repaid back to you, keep the bank statements and relevant documentary proofs. • Additionally, if the loan was given in cash via an ATM withdrawal, keep the ATM slip for records, so as to satisfy any subsequent question regarding the same if it were a gift or not. • Always advise your friends and family while making the gift that it may be taxable and they get it checked by their accountants.

30. Thank You Ajit Kumar Jain Founder- Vincent Advisors Business Consulting, Tax and Regulatory