Can a person not born in India inherit real estate legally and if so what are the tax implications of such a capital gain? The short answer is yes. The question acquires escalating interest if one considers estates of Ultra High Net-Worth Individuals owning land worth hundreds of crores.
Conditions for Property Transfer to Non Residents in India
The important requirement of such a transfer, however, is that the property must have been in the ownership of a person resident in India at the time of purchase. The asset may be in the form of commercial, agricultural or residential land.
As of now, there is no inheritance tax on property in India. However, the property is still subject to wealth tax, in particular, if its value is greater than Rupees 30 lakh and the inheritor owns more than one property within the geographical territory of India.
Conditions for Income Taxes on Non Residents in India
Your overseas assets would only attract income taxes in India if you either reside in India for 182 days of the current financial year or you have done so for 60 days in the current year and at least 365 days in the preceding four years according to the Income Tax Act, 1961. This applies even to the crew of foreign ships and vessels which remain within Indian Coastal waters for 182 days of the year.
Note that individuals who continue to be in the employment of an Indian company or those who remain on an Indian ship in international waters would be counted as a resident tax assessee by the CBDT irrespective of the duration of their stay outside India.
Tax Laws for NRIs
NRIs may be subject to taxes in India only for income earned here and would have to file income tax returns regardless if those earnings exceed Rupees 300,000 for the fiscal year 2017-2018. An NRI, as understood under FEMA guidelines, is a person who ordinarily holds residence outside India for the purposes of “employment, business or vocation” and whose behavior and circumstances show that the duration of such residence is uncertain or indefinite. So if an individual lives in India for less than 182 days in a financial year, she automatically qualifies to be an NRI in the next financial year for the purposes of tax. NRIs are also required to file income tax returns online for their earnings here.
The Income Tax Act specifies an ‘Ordinary Resident’ as one who has stayed in India for 730 days or more during the last 7 immediately preceding financial years prior to the current assessment year.
Those who do not fulfill the condition prescribed above will be considered as Residents but Not Ordinarily Resident (RNOR).
Taxes for Residents Working Abroad
For Resident Indians, any income regardless of where it is earned will be taxable in India. For the rest, only those incomes which are “received, accrued or arisen in India” will be considered for taxation here. The tax rates and slabs remain the same as those for ordinary residents.
Types of Taxes for Non-Residents in India
A non-resident in India is obliged to pay the tax authorities the following taxes:
- A special category of tax rates on capital gains and distributed dividends (other than those mentioned in Section 115 O).
- Sportsmen and entertainers or their associations participating in an event, appearing in an advertisement or other media and earning an income in India are taxed at the aggregate of the following two rates:
- 20% of the fee received.
- An amount of tax that she would have been charged had she not earned that fee.
- Ordinary tax slab rates on par with resident taxpayers.
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