5 May 2024When it comes to managing the cross-border tax implications of inherited assets, understanding the nuances of tax laws in India and how they interact with international tax treaties is paramount. This guide explores the taxation of inherited mutual funds, fixed deposits, and rental income in India for Non-Resident Indians (NRIs).
Rental Income Taxation in India
Rental income derived from a property in India is taxable in the hands of the co-owners according to their share of investment in the property. In the event of inheritance, the beneficiaries, including NRIs, become liable for tax on their share of the rental income. This income must be declared under the head 'Income from House Property' in their Indian tax returns. Inheritors must understand that their liability is proportionate to their property ownership, including any inherited shares.
Fixed Deposits (FDs) and Mutual Funds (MFs) Inheritance
When an NRI inherits FDs and MFs, the income generated from these assets, such as interest from FDs, dividends, or any similar income, is taxable under 'Income from Other Sources. The taxation rate depends on the nature of the income and the specific tax slab applicable to the NRI.
The classification as long-term or short-term gains is crucial for capital gains arising from the sale of inherited MFs, as it determines the applicable tax rate. This classification depends on the period for which the original owner held these assets. The cost of acquisition for capital gains calculation is considered as the cost to the original owner, ensuring a fair valuation for the inheritor.
Double Taxation Avoidance Agreements (DTAA)
NRIs inheriting and earning income from Indian assets while residing in foreign countries should be aware of the Double Taxation Avoidance Agreement (DTAA) between India and their resident country. The DTAA aims to mitigate the risk of double taxation on the same income in two countries. By leveraging the provisions of the DTAA, NRIs can potentially reduce their tax liability, ensuring they are not unduly taxed on the same income in both India and their country of residence.
It's essential for NRIs to understand their tax obligations in both India and their country of residence. Consulting with a Chartered Accountant who is well-versed in NRI taxation can provide valuable guidance on navigating the complexities of international taxation and making informed decisions about managing inherited assets.
Conclusion
Inheritance tax planning for NRIs requires a nuanced understanding of the tax laws in India and how they interact with international tax agreements. By staying informed about their obligations and seeking professional advice, NRIs can ensure compliance and optimize their tax liabilities across jurisdictions.