I am an Overseas Citizen of India (OCI) cardholder and have received a few acres of agricultural land from my parents who are Indian residents/citizens. Can I retain this property and pass it on to my two children (one born in India and the other in the US) who are US citizens and OCI card holders? Can they keep this property for the rest of their life if they want it? If I sell this property, how should I report this sale on my US tax return? Also, do I need to pay any tax in India from the sale?
,Name withheld on request
Under the Exchange Control Act, non-resident Indians or foreign passport holders are prohibited from acquiring agricultural land in India. However, as an exception, a non-resident Indian or an OCI cardholder can inherit any immovable property (including agricultural land) in India from a person resident in India or a person resident outside India who has property was acquired. In accordance with the provisions of the exchange control law in force at the time of acquisition.
Accordingly, as an OCI, you can get agricultural land from your parents who are persons resident in India. Similarly, your children may acquire agricultural land in India from you as a person resident outside India who acquired the property in accordance with the provisions of the Exchange Control Act in force at the time of acquisition. However, you or your children will be able to transfer such agricultural land only to a person resident in India.
Under the Income Tax Act, no income tax is levied on the inheritance and sale of agricultural land in India unless the agricultural land is located at or within a specified distance from urban areas. However, such sales may be taxed in the US in accordance with US tax laws.
Sonu Iyer is EY India’s Tax Partner and People Advisory Services Leader.
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