These days there has been a growing trend amongst youngsters to leave India for pursuing employment opportunities abroad. Consequently, there are several instances where properties situated in India are transferred to NRIs located abroad by the elders of the family, on their death through Will. In such cases, it becomes necessary to evaluate such transfers from an Income Tax perspective to ensure compliance with Law and to ascertain tax liability, if any, in the hands of NRIs.
An analysis of the same has been given below for reference.
Legal Position
- Income Tax liability arises in hands of NRI in India only when the income accrues/arises or is deemed to accrue/arise in India, or is received or deemed to be received in India.
- If any person (Resident or Non-Resident) receives any property, be it movable or immovable, without or for inadequate consideration then the same is treated as “Income from Other Sources” under Section 56(2)(x) in the hands of the transferee. However, there are exceptions to the applicability of Section 56(2)(x). One of those is transfer under Will.
Analysis
If an immovable property, be it commercial or residential, is transferred without consideration to an NRI then the same attracts income tax liability under the head “Income from other sources” in the hands of NRI, provided
- the Stamp Duty value of the same exceeds Rs.50,000, and
- The property is situated in India because only then the income accrues or arises in India.
However, there are certain exceptions to the applicability of Section 56(2)(x) whereby the taxability thereunder doesn’t arise. One such exception is transfer by way of “Will”.
Hence, if the property situated in India is received by an NRI through Will, although the income accrues in India as per Section 9, it will not be taxable in hands of NRI due to the non-applicability of Section 56(2)(x).
Conclusion
No tax liability will arise in the hands of NRI in India on account of such transfer.
