Ways Through Which a Resident Indian Can Transfer Overseas Property:
Transfer to a Person Resident/Non-Resident in India:
A person resident in India may transfer immovable property outside India to a person resident or non-resident in India through the following means:
i. Inheritance:
Overseas property can be transferred through inheritance to a resident or non-resident Indian.
ii. Gift:
Overseas property can be transferred as a gift to another resident.
iii. Sale of Immovable Property:
- If sale to a resident:
A practical difficulty in such transactions arises in the settlement of payment for foreign property, as it can be challenging to track these transactions. However, the transfer should still fall within the Liberalized Remittance Scheme (LRS) limits applicable to the buyer. - If sale to a non-resident:
A resident Indian can sell property to a person resident outside India (PROI), but any proceeds (such as income or sale proceeds) derived from those investments must be repatriated to India unless the funds are reinvested abroad.
Note:
Repatriation Limit under FEMA: The Liberalized Remittance Scheme (LRS) allows Indian residents to remit a certain amount of money abroad (currently up to USD 250,000 per financial year), and this scheme applies to both investments and the repatriation of funds from foreign investments back to India.
Summary of Permissibility for Acquisition and Transfer:
| Mode | Transferor | Transferee |
|---|---|---|
| Inheritance | Person Resident in India | Person Resident in India |
| Gift | Person Resident in India | Person Resident in India |
| Purchase | Person Resident in India | Person Resident in India |
| Inheritance | Person Resident outside India | Person Resident in India |
| Purchase | Person Resident outside India | Person Resident in India |
| Inheritance | Person Resident in India | Person Resident outside India |
| Purchase | Person Resident in India | Person Resident outside India |
Note:
Gifting of immovable property is not permitted between a person resident outside India (PROI) and a person resident in India (PRII) under Rule 21 of the Overseas Investment (OI) Rules, 2022. Such transactions require prior RBI approval.
Tax Implications on Transfer of Overseas Immovable Property by Resident Indian:
i. Transfer to Resident:
- By way of Inheritance:
In the case of receipt of overseas property by a resident from any non-resident or resident, there is no inheritance tax in India. Therefore, any receipt of property through inheritance will not give rise to any tax implications for the recipient. - By way of Gift:
If a resident receives immovable property as a gift, it is exempt from tax if transferred by a relative. However, if the property is received as a gift from a non-relative and exceeds a stamp duty value equivalent of ₹50,000, it will be taxable under Section 56(2)(x). - By way of Sale:
As per the Double Taxation Avoidance Agreement (DTAA), income from property is taxed in the country in which the property is situated. Accordingly, under the Income Tax Act, 1961:- If the property is held for 24 months or less, the gains are considered Short-Term Capital Gains (STCG) and taxed according to the individual’s income tax slab rate.
- If the property is held for more than 24 months, the gains are classified as Long-Term Capital Gains (LTCG). For properties acquired on or after July 23, 2024, LTCG is taxed at a flat rate of 12.5% without the benefit of indexation.
- India provides a foreign tax credit for capital gains tax paid abroad.
ii. Transfer to Non-Resident:
- By way of Inheritance:
As there is no inheritance tax in India, any transfer of property through inheritance does not result in tax implications for the recipient. However, the non-resident recipient should consider tax implications in the host country if inheritance is taxable there. - By way of Sale:
As per the DTAA, income from property is taxed in the country in which the property is situated. - In the hands of the transferor (Resident Indian):
- If the property is held for 24 months or less, the gains are considered STCG and are taxed according to the individual’s income tax slab rate.
- If the property is held for more than 24 months, the gains are considered LTCG and are taxed at 12.5%.
- A foreign tax credit is available in India for capital gains tax paid abroad.
- Transfers Between Two Non-Residents (Inheritance, Gift, or Sale):
There are no tax implications in India for overseas properties transferred between two non-residents.
Disclaimer:
The information provided in this document is for general informational purposes only and does not constitute legal, tax, or financial advice. While efforts have been made to ensure the accuracy and reliability of the information, applicable laws, regulations, and policies are subject to change and may vary based on specific circumstances. Readers are strongly advised to seek professional guidance from qualified legal, tax, or financial advisors before acting on any information contained herein. The author and publisher expressly disclaim any liability for any loss or damage incurred, directly or indirectly, from the use of or reliance on this material.