NRI Inheritance of Property in Karnataka — FEMA + Succession

An NRI whose parent dies holding a Jayanagar flat does not need RBI approval to inherit it. The Foreign Exchange Management Act, 1999 draws a clear line between purchase and inheritance — the restrictions that apply to purchase do not apply to succession. But the process after inheritance has its own requirements, and getting them wrong creates complications when the property is eventually sold.

What an NRI or OCI can inherit in India

Under FEMA, a non-resident Indian (NRI) or Overseas Citizen of India (OCI) can inherit any immovable property in India — residential, commercial, agricultural, farmhouse — from a resident or a non-resident. The prohibition on NRIs purchasing agricultural land does not extend to inheritance. An NRI can inherit a family farm in Karnataka and hold it legally, subject to the state's land reform rules on subsequent transfer.

No prior RBI approval is needed for the inheritance itself. But RBI reporting is required under FEMA: the NRI must report the inheritance to the RBI through the authorised bank within a reasonable time if the value exceeds the prescribed threshold. The reporting is procedural, not permissive — the inheritance is valid regardless, but non-reporting creates a FEMA compliance gap.

Hindu Succession Act: who inherits what

Where the deceased was a Hindu and died intestate (without a will), the Hindu Succession Act, 1956 governs. For a male dying intestate, Section 8 applies: Class I heirs (spouse, children, mother) take simultaneously and equally, excluding Class II heirs entirely. For a female dying intestate, Section 15 applies a different distribution priority.

Where there is a will, the will governs distribution subject to probate requirements. Karnataka courts require probate for wills involving immovable property in specific circumstances — the requirement depends on whether the deceased was a Hindu (generally not required for Hindus under Karnataka practice) or Christian (generally required). Muslim succession is governed by personal law. For inter-faith families and marriages under the Special Marriage Act, the Indian Succession Act, 1925 applies.

Mutation in Karnataka after inheritance

Inheriting the property does not automatically transfer the Khata. The NRI must apply to the GBA (formerly BBMP) for a Khata mutation — transferring the property record from the deceased's name to the heir's name. The documents required are: the death certificate, legal heir certificate from the Tahsildar, the prior Khata in the deceased's name, a registered partition deed or family settlement if there are multiple heirs, and an indemnity bond where applicable.

The mutation application can be filed by a constituted attorney in India acting under a registered Power of Attorney if the NRI cannot travel. The PoA must be executed before the Indian Consulate in the country of residence (or before a notary with apostille where the country is an Hague Convention signatory) and adjudicated at the Karnataka Sub-Registrar's office on arrival in India.

Succession certificate and probate

A succession certificate from the civil court is required where the estate includes movable assets (bank accounts, shares, bonds) and the institution holding the assets requires it. For immovable property, the legal heir certificate from the Tahsildar is typically sufficient for Karnataka mutation purposes. Probate is required for wills relating to immovable property in certain cases, and for all assets where the deceased was a Christian under the Indian Succession Act.

Sale of inherited agricultural land

An NRI can inherit agricultural land but cannot sell it to another NRI or OCI. The Karnataka Land Reforms Act requires agricultural land to be sold only to a resident Indian who is either a cultivating tenant or has an agricultural background. The restriction applies to the NRI seller; it does not affect the validity of the inheritance itself. Where an NRI who inherited agricultural land wants to sell, the buyer must meet the Section 79A and 79B Karnataka Land Reforms Act criteria.

Repatriation of sale proceeds

When an NRI sells inherited property in India, the net sale proceeds can be repatriated abroad. The annual repatriation limit under the RBI's Liberalised Remittance Scheme for NRIs is USD 1 million per financial year. Amounts above that limit require prior RBI approval. The proceeds must be routed through an NRO account; the bank will require a CA certificate (Form 15CA/15CB) confirming tax compliance before remitting abroad.

Tax on sale of inherited property

India has no inheritance tax. The NRI's tax exposure arises on the sale of the inherited property. Capital gains are computed on the difference between the sale price and the indexed cost — where the original purchase was by the deceased, the deceased's cost and purchase year are used for indexation. The NRI buyer's bank will deduct TDS at 20% on the long-term capital gain before remitting — ensure the TDS certificate is collected for credit against the final tax liability.