Identify the inherited asset before choosing the account. Ordinary Indian estate receipts can be credited as legitimate dues to an NRO account, but an inherited NRE balance has separate rules. The bank should check the account history, beneficiary status and permitted credit or transfer. Do not assume that all inheritance is freely repatriable or that every inherited balance must first pass through an NRO account.
The three accounts do three different jobs
- Non-resident external. Non-resident Indians and persons of Indian origin may open and maintain it. The credits permitted are inward remittances, interest accruing on the account, interest on investments, transfers from other external or foreign currency non-resident accounts, and maturity proceeds where the investment was made from that account or through an inward remittance. Current income such as rent, dividend, pension and interest is also permitted where the bank is satisfied that it is current income and that income tax has been deducted, paid or provided for. Interest on balances in it is exempt from income tax.
- Foreign currency non-resident. Also for non-resident Indians and persons of Indian origin, held in a permissible foreign currency, and maintainable only as a fixed deposit. The conditions on credits, debits, joint holding and operation by power of attorney that apply to the external account apply here too.
- Non-resident ordinary. Open to any person resident outside India for bona fide rupee transactions, in any form including savings and fixed deposit. The permitted credits are inward remittances from outside India, legitimate dues in India, and transfers from other ordinary accounts.
Money coming to you from an Indian estate is a legitimate due in India. It is not an inward remittance and it is not current income of yours. That places it in the third category and nowhere else.
Where a deceased person held a non-resident external account, the rules do allow the balance to be transferred to a non-resident nominee of that account holder, and branches sometimes generalise from that into treating any inherited money the same way. They are different things. Proceeds of an Indian estate, a property sale by the estate, or a release from an Indian bank account of a resident deceased are legitimate dues in India and belong in the ordinary account until they have been through the tax and remittance process.
The sequence that works
- Establish the entitlement first. The bank or the buyer will not release anything to a name that is not on a document. Depending on the asset and whether there was a will, that means the will, a grant, a succession certificate or a legal heir certificate, and our guide on the difference between a succession certificate and a legal heir certificate sets out which one your situation needs.
- Where the asset is a debt or a security, expect a succession certificate. That is the document courts issue for debts and securities of a deceased person, and our guide on obtaining a succession certificate in India sets out the process and what it does and does not cover.
- Take the money into the ordinary account. Give the bank the estate documents, your permanent account number and your status. If you do not already hold such an account, open one before the money is released rather than after.
- Settle the tax. The inheritance receipt is excluded from the gift-receipt charge. A later sale or income from the asset needs its own tax review, including any exemption. Confirm the remittance documents the bank needs for that particular transaction.
- Then move it. Balances in the ordinary account may be repatriated by non-resident Indians and persons of Indian origin up to one million US dollars per financial year, on the conditions in the remittance of assets regulations, and funds may be transferred to a non-resident external account within that same facility.
Two details worth knowing before you start
The Reserve Bank's Master Direction on Remittance of Assets applies the annual facility expressly to balances in ordinary accounts, sale proceeds of assets and assets acquired in India by way of inheritance or legacy. It also deals with assets acquired under a deed of settlement made by a parent or a relative where the settlement takes effect on the death of the settlor, and it distinguishes that from a settlement made without retaining a life interest, which it treats as a gift with the ordinary account rules applying to the eventual sale proceeds. If a parent is planning a settlement now, that distinction is worth understanding before the deed is drafted.
The second is administrative and catches people every year. Where the remittance is made in more than one instalment, all instalments must go through the same authorised dealer, and where the money is coming out of an ordinary account the bank must take an undertaking that it represents legitimate receivables in India and not borrowings or a transfer from another such account. Choose the bank before the first instalment.
Once it is out
The route, the ceiling and the paperwork are set out in our guide on repatriating money from India as an NRI. Confirm the current limit and the documentary requirements with your authorised dealer bank, and the tax treatment of the estate and of any sale with a chartered accountant for the relevant tax year, because both are applied case by case rather than by a general rule.