What is Inheritance?
Any assets / wealth devolving on to the beneficiaries by virtue of succession on demise of a person is Inheritance. Following are the 3 legal statutes that deal with the devolution of the property on the death of a person:
• Hindu Succession Act
• Indian Succession Act
• Muslim Law
The applicability of the above statutes is summarized below for easy understanding:
A Person Dies:
• No Will - Intestate:-
- Hindu, Jain, Sikh, Buddhist -- Hindu Succession Act
- Christian, Parsi, Jew -- Indian Succession Act
- Muslim -- Muslim Law
• Makes a Will - Testate:
- All except Muslim -- Indian Succession Act
- Muslim -- Muslim Law
Whether a NRI can acquire property by way of Inheritance?
• Any person, whether or not resident / citizen of India is eligible to receive property by inheritance.
• Transfer/ holding of the said property shall be subject to exchange control regulations in India.
Taxation on:
a) Inheritance of Assets / Property held in India:
• Currently in India, there is no Inheritance / Estate tax
• Several countries however, levy Inheritance / Estate tax. In this regard, a NRI shall also have to keep in mind the tax implications of inheritance in his / her country of Residence.
• Further, for your information kindly find below the rates that may be applicable in the US and UK:
Resident / Citizen Remarks (subject to exemptions, reporting, etc. as per the domestic law of the country)
US Estate duty upto approx. 40%
UK Estate duty upto approx. 40%
b) Income earned from Property inherited:
Income earned from property inherited is taxed in India as under:
• Upto the date of death - taxed in the hands of the deceased. However, the same would be leviable and recoverable from the legal representatives of the deceased in a like manner and to the same extent as the deceased (liability restricted upto the value of property inherited).
• After the date of death - taxed in the hands of beneficiaries / executor(s) in their individual capacity.
WILL:
• A WILL is a legal document which expresses a person’s wishes as to the distribution of his / her property upon death.
• A person who makes the WILL is termed as a “Testator”. The property of the deceased is called the “Estate”. A person who inherits all or part of an estate under a WILL is called a “Beneficiary”.
• Until the person dies, WILL is only an expression of his intention. Therefore, it may be changed as many times as he wishes.
• A person may dispose off any of his property during his / her lifetime, even if the property is mentioned in the WILL.
• The WILL only applies to those assets, right and interest which are owned at the time of death and any future or contingent interests.
Administration of the WILL (Probate, Letter of Administration and Succession Certificate):
Probate:
• After the death of the Testator, the grant of Probate by court establishes the Executor’s right to represent the estate.
• Probate is an official evidence of the Executor’s right to dispose off the property of the Testator as per the terms of the WILL.
• Under the Indian Succession Act, a Probate can be granted only to an executor appointed under a WILL.
• A Probate is mandatory in case of:
1) WILLs by Hindus executed within areas under the jurisdiction of Bombay, Madras and Calcutta High Courts;
2) WILLs by Hindus outside these areas if they relate to immovable property situated within the jurisdiction of Bombay, Madras and Calcutta High Courts
Letter of Administration:
• Where the Executor is not named in the WILL, an application can be filed in the court for grant of Letter of Administration of the property.
• Letter of Administration is a certificate granted by the competent court to an administrator authorizing him to administer the Estate of the deceased in accordance with:
- WILL, in case of Testate;
- Law of Succession, in case of Intestate
Succession Certificate:
• In case where Probate or Letter of Administration is not mandatory, Succession Certificate can be granted by the court to realize the debts and securities of the deceased and to give valid discharge.
• However, holder of the Succession Certificate is required to dispose off the amount so realized in accordance with the rights of the person entitled thereto.
JOINT OWNERSHIP:
• Where the assets are held in joint names, the interest of the deceased in that asset devolves on his / her legal heirs.
• The respective authority may transfer the assets in the name of the surviving joint holder by deleting the name of the deceased.
• However, we understand that the rules of succession will supersede the survivorship and the rights of the legal heirs to demand his / her interest in the assets of the deceased from the surviving joint holder shall not be adversely affected.
• It is advisable to make a WILL and to file appropriate nominations and applications for joining second name to various assets, in order to avoid the necessity of obtaining Probate or Letters of Administration or Succession Certificate for the sake of expediently dealing with the property of the deceased.
NOMINATION:
• Nomination has become a standard feature for various assets like Bank Deposits, Shares, LIC Policies, Accident Insurance Policies, PPF, Immovable Property, or other assets.
• In the eyes of law, the position of a Nominee is that of a Trustee.
• The Nominee need not necessarily be the Beneficiary under the WILL. He is legally bound to transfer the nominated property to the Beneficiary of the WILL or if there is no WILL, the legal heirs.
• Nomination coupled with a WILL in favor of Nominee, where the Nominee is intended to be made the Beneficiary, can avoid disputes and make the distribution process smooth, efficient and effective.
• The effect of the nomination is only to facilitate collection of the amount due to the Estate of the deceased without the production of a Succession Certificate or Proof of Title.
• However, in view of the judicial interpretation by the courts of S. 72 of the Companies Act, legal heirs / Beneficiary under the WILL may not be eligible to claim their interest against the nominee in case of shares of a company.