Succession Planning for Non Resident Indians – a quick reckoner
Nearly two decades ago Thomas Friedman authored a view of the globalized economy in his seminal book The World is Flat. Over the subsequent years we have seen this come true for millions of Indians who have moved abroad for work, education or family and have continued living in their adopted countries. They visit India periodically but mostly have no intent of returning permanently. However, back home as their parents and loved ones pass on, these Non Resident Indians inherit significant property and other assets through succession.
Given the limited exposure to changing laws, local circumstances and availability of time, they tend to struggle navigating the road to succession. Much of this struggle is with complex inheritance laws and opaque procedures compounded with opportunistic pricing by intermediaries.
Sadly, India lacks a consolidated information registry that caters to this particular social situation – from applicable laws, guidelines, points of contact, practitioners. The challenges are intertwined with municipal procedures at local levels, community-based succession laws and national codes of taxation. These differ in interpretation and applicability based on asset classes – immovable to financial – and even location.
Consequently, most NRIs fall back on word-of-mouth references that usually confer further opacity and higher opportunistic pricing, thus preventing them from inheriting what is lawfully theirs.
To help provide a quick navigational guide, this article intends to highlight areas of special attention that can help ease this journey.
Real Estate: This is the single largest concern area for NRIs and the most complex to deal with. NRIs can inherit property in India and would need the services of Specialised Succession Advisories to file their claims. Having succession testaments like Wills makes the process simpler but still needs time and effort. Always rely on Specialised Advisories to handle your case.
Taxation: No income tax is payable on inheritance; however, the property maybe subject to Wealth Tax based on certain conditions. Advance tax planning is preferred, but appointing a Specialised Succession Advisory to compute the applicable taxes can save a lot of hassle and money. Local municipal taxes are due on the property irrespective of ownership and use and must be cleared.
Disposal and Repatriation: Many NRIs intend to sell off inherited property since they do not intend to stay. The proceeds are subject to tax and computation of the net gains require complex calculation. There are also limits on the amount that can be repatriated in a financial year. Always use a Qualified Financial Advisor to help with this.
Double Taxation: The NRI’s country of residence may have tax treaties with India and that may help them avoid double taxation. The onus of providing the information and claiming relief is theirs and mistakes can be expensive in both countries.
Financial Assets: Bank accounts, Insurance claims, ownership of shares and mutual funds, Provident funds, Postal Savings are the next dominant asset classes that are inherited. Each of these have slightly different procedures to claim and require separate documentation. Depending on whether testamentary succession or nomination instructions are available, NRI may have to prove legitimacy of claims. This is not the same as the process for real estate and involve different agencies and statutory bodies. It is helpful if benefactors (parents, siblings etc.) clearly indicate successors in these instruments. Sale of these instruments attract capital gains taxes and failure to file such can affect legal status and attract criminal procedures that can have deep impact. Appointing reputed advisories, expert at Succession is a better way to process these claims.
This is one in a series of articles around this topic. In subsequent articles we would talk about specific matters and how to best handle them with advance planning and preparedness.