Non-Resident Indians (NRIs) frequently inherit financial assets like shares, mutual funds, and bonds from relatives in India. While the emotional aspect of inheritance is challenging, the administrative and regulatory requirements can add complexity. Understanding the proper steps to claim these assets ensures compliance with Indian regulations and helps avoid potential legal complications.
Understanding NRI Inheritance Rights
NRIs have the same inheritance rights as resident Indians under Indian succession laws. Whether assets pass through a will or through intestate succession, NRIs are legally entitled to their inherited share. However, the Foreign Exchange Management Act (FEMA) regulations govern how NRIs can hold and manage these assets, making the claiming process different from that for resident Indians.
The Reserve Bank of India permits NRIs to inherit and hold shares, mutual funds, and bonds on a repatriation or non-repatriation basis, depending on how the deceased held them originally and the NRI's preference going forward.
Essential Documents Required
Before beginning the claiming process, NRIs should gather several critical documents. These typically include the death certificate of the deceased, legal heir certificate or succession certificate from a competent court, a copy of the will (if one exists) and probate where applicable, and proof of relationship with the deceased.
Additionally, NRIs must provide their valid passport, current visa or employment documents from their country of residence, and PAN card. If opening new accounts, recent passport-sized photographs and current address proof (both Indian and overseas) will be necessary.
Opening the Correct Bank Account
NRIs cannot use regular savings accounts to receive inherited securities. They must operate either an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account. An NRO account is typically required initially for inheriting assets, as inherited funds are considered Indian-source income.
If the securities are held on a repatriation basis, NRIs may need an NRE account for future transactions. Many NRIs maintain both account types to manage repatriable and non-repatriable assets separately.
Step-by-Step Process for Claiming Shares
For shares held in physical form, NRIs must first dematerialize them by opening a demat account with an authorized depository participant. They should submit transmission forms along with inheritance documents to the company's registrar and transfer agent.
For shares already in demat form, the process involves submitting a transmission request to the depository participant handling the deceased's demat account. The shares will then be transferred to the NRI's demat account after verification of documents.
NRIs must ensure their demat account is designated as an NRI account with proper NRE/NRO linkage to comply with FEMA regulations.
Claiming Mutual Fund Units
For mutual fund units, NRIs should contact the respective Asset Management Company (AMC) or Registrar and Transfer Agent. They need to submit a transmission request form along with the inheritance documents.
The AMC will verify the documents and transfer units to the NRI's name. NRIs must provide their KYC documents and bank account details. If the mutual fund scheme doesn't permit NRI investment, the AMC may require the NRI to redeem the units, with proceeds credited to their NRO account.
Some mutual funds have restrictions on NRI investors, so verification of scheme eligibility is crucial before attempting transmission.
Process for Bonds and Debentures
For government bonds and securities, NRIs should approach the bank or institution where the deceased held the bonds. For corporate bonds and debentures, contacting the issuing company's registrar is necessary.
The transmission process is similar to shares, requiring submission of inheritance documents and the physical bond certificates (if not dematerialized). NRIs can hold these securities subject to FEMA guidelines, typically in their NRO demat account.
Tax Implications to Consider
Inherited assets themselves are not subject to inheritance tax in India, as the country abolished estate duty in 1985. However, any income generated from these assets—such as dividends, interest, or capital gains from selling securities—is taxable.
NRIs must comply with Indian tax laws and may also have tax obligations in their country of residence. Double Taxation Avoidance Agreements (DTAA) between India and many countries can help prevent being taxed twice on the same income. Consulting with a tax professional familiar with cross-border taxation is highly advisable.
Repatriation Considerations
NRIs should determine whether they want to hold assets on a repatriation or non-repatriation basis. Repatriable assets allow funds to be transferred abroad freely, while non-repatriable assets restrict such transfers.
Generally, inherited assets are initially non-repatriable. However, NRIs can repatriate up to USD 1 million per financial year from the sale of inherited assets, subject to payment of applicable taxes and submission of required documentation to authorized dealer banks.
This article is for general informational purposes only and should not be construed as legal, tax, or financial advice. NRIs should consult with qualified professionals including chartered accountants, lawyers, and financial advisors familiar with FEMA regulations and cross-border inheritance matters before taking any action regarding inherited assets.
