Inheriting real estate property with area restrictions for PIO/OCI

kmalik

In certain areas of India (for instance, Uttaranchal) there are restrictions on how much property can be acquired by non-residents (including Indian citizens residing out-of-state).

- What happens when such property is inherited by children living-out-of state?
- Can they hold on to the property even if it exceeds the restriction on acquisition by sale for a non-resident?
- Do the answers change if this property is inherited by a PIO/OCI and not an Indian citizen residing out-of-state?

PS: My interest in these questions is more than theoretical. My parents are residents of Uttaranchal - and are therefore not subject to the land acquisition restrictions there (and already hold property there).

capt_mahajan

Not an expert, but I would surely think inheritance of legal property of Uttaranchal residents would not be a problem for Indian citizens living out of state. I guess under usual inheritance scenarios (property being inherited by immediate family), the inheritors would be taken as 'Uttaranchal residents', and could probably hold on to the property/

I am even less sure about the NRI/PIO thing, and some answers will certainly change.. but maybe they will have more to do with property sale and remittance of funds abroad rather than the right to own/hold property.

kmalik

Thanks Captain. I realize it is a gray area, and a legal opinion might be needed to confirm it.

I have been playing with the idea of acquiring retirement property in Uttaranchal through my parents, by gifting them the necessary funds. As such, I am interested mainly in holding on to property instead of selling it.

Presuming no red lights emerge from responses here, I'll have to check with the tax professionals on the US end as to ways of avoiding inheritance tax on property I contribute my own after-tax funds to acquire.

Anyway, thanks a lot for the response.

Nick-H

I'm sure you know where to find the RBI FAQs already. Otherwise, this is way outside of my small knowledge.

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kmalik

Nick - Thanks. I looked at the RBI faq, and there did not seem to be an issue. A PIO/OCI can clearly acquire non-agricultural property in India. If there is a restriction I might be looking to circumvent, it is the state restriction of 250 sq. meters maximum for non-residents of Uttaranchal. And, only indirectly so since the transfer of property happens after an indeterminate number of years.

crvlvr

the RBI allows PIO/OCI to inherit any/all properties including agricultural ones. You may want to explore which laws take precedence if the state laws conflict with Federal/National laws.

kmalik

crvlvr - Good point about inheritance not being restricted to non-agricultural land. I suppose we might have to consult a lawyer. A little apprehensive about the reliability of 'opinion' in a context where there is likely to be little case law. Both the PIO and Uttaranchal restrictions are relatively recent.

crvlvr

sometimes you are better off checking with the clerk in the registrar's office

wonderwomanusa

When you inherit cash or property in the USA (by present laws, which of course could change), the estate pays the tax before you get the property. If the estate is in another country, you still will not pay Federal tax on the property you inherit. Some states have inheritance taxes; Pennsylvania is one, for example.

you will need to check with the state in which you live to see what their laws are.

If you are a legal resident (green card) or US citizen, you have agreed to be taxed on your worldwide income, so if you should sell the property, you will show it on your tax return. If India taxes you on the sale, there is a foreign tax credit which will relieve some or all of the burden of double-taxed income.

I am a tax professional; you may PM me if you have questions about this.

Nick-H

Generous offer WWUSA

I hope too many people don't take advantage of it. If you were a British International tax pro, I'd be PMing you straight away

crvlvr

I doubt if the US tax authorities will ever find out about your capital gains in India if you don't repatriate the monies.

kmalik

Thanks a lot, WonderWomanUSA! I have sent a message taking you up on it, before Nick talks you into researching the British tax issues!

crvlvr - I'd rather keep my nose clean when dealing with IRS. They do not take a kind position to any hiding of income. In any case, the net transaction I am looking to do is to pay for the property myself - and receive it. The only reason to involve my parents in the transaction is to get around the maximum acquisition restriction. If that route causes US inheritance tax liability - I'd simply not take pursue this course (and make do with 250 sq m).

In any case, if I understand the wonderful take of the WonderWoman - the inheritance tax is due to the estate and not the recipient. So. federal tax minght not be an issue, albeit state tax might still be a factor.

Thanks a lot.

wonderwomanusa

That is true, however, there is that implicit promise to pay tax on worldwide income that goes with being a legal resident or citizen.

wonderwomanusa

I have checked a bit further and Ohio, where you are now, does not have an inheritance tax.

If your parents die in India, then the estate taxes, if any, would be paid to India. Your inherited land would be free of US tax. If you inherit cash, there is no tax due from you on the money -- only on its EARNINGS (interst/dividends) when you invest it. If you stuff it into your mattress, no US tax.

kmalik

Thanks a lot! This also answers a burning questions my wife and I have - living in Ohio must be good for something