In an increasingly globalised world, owning assets is no longer about who gets what. It is also about planning for eventualities arising from varying and complex legal systems and rules governing succession.
Consider a common situation today. A non-resident Indian (NRI) with assets in India marries a foreign national. There are two possibilities: first, where the NRI retains their Indian citizenship; second, where the NRI takes up foreign citizenship, in which case, they could be an Overseas Citizen of India (OCI) if they wish. The spouse and children in both situations will be eligible for OCI registration, subject to relevant conditions.
In such situations, a fundamental question arises: which laws determine who inherits the assets?
One estate, varying laws
Under Indian law, movable and immovable assets are treated differently upon the owner's demise in the absence of a will. Movable assets such as securities and investments are generally governed by the laws of the deceased’s domicile. Immovable assets, such as real estate, are governed by the local laws of the jurisdiction where the property is situated.
For instance, consider a Hindu living in Singapore who owns units in a Singapore-based fund and a house in India. Where this person passes away without a will, succession of the units will be governed by Singapore law, while that of the house will typically be governed by the Hindu Succession Act, 1956 (which is applicable law in India).
As this illustration shows, a single estate may be subject to different legal regimes, resulting in succession complexities.
Effect of an overseas marriage on inheritance rights
A marriage validly entered into overseas is generally recognized in India as long as it satisfies the requirements under Indian law. Registration in India is not compulsory for succession matters. This means that inheritance rights do not depend on whether there is specific registration in India, provided the marriage itself is legally valid. This issue has also drawn policy attention in recent years. In 2019, the Government of India introduced a Bill in parliament proposing mandatory registration of marriages between an NRI and an Indian citizen, or between two NRIs, driven by rising reports of Indian women being trapped in fraudulent marriages with NRIs. The Bill was not passed, and has since lapsed. It has recently been confirmed in parliament that such legislation will not be reinitiated.
Inheritance of Indian assets by foreign citizens
Under Indian succession law, anyone can inherit property, including NRIs and their heirs. The Supreme Court of India has clarified that citizenship does not bar anyone from inheriting Indian assets. Thus, a foreign national (such as the deceased NRI’s heir) will be included in the line of succession.
That said, inheritance and ownership by acquisition are treated differently. Regulatory requirements continue to apply after the property has been inherited. For instance, where the next of kin does not procure an OCI card, prior approval from the Reserve Bank of India (RBI) is required to inherit a deceased NRI/OCI’s immovable property.
Further, NRIs or OCIs may remit up to $1 million per financial year from inherited Indian assets, while amounts over this cap would require prior RBI approval. In summation, the next of kin of the deceased NRI or OCI will be able to inherit the deceased’s property, subject to valid documentation and prior RBI approval, where required.
What a ‘will’ will resolve
As illustrated above, complexities may arise due to a single estate being subject to different legal regimes in addition to the possibility of disputes amongst family members. This may result in delays and uncertainty. Therefore, it is advisable to consolidate the distribution of assets through a will, with a separate will for Indian assets distinct from a will for assets in foreign countries.
A thoughtfully crafted will can significantly reduce complications upon demise. The assets covered in the will vest in the “executor” upon the demise of the person who has made the will. The executor is responsible for managing and distributing the assets of the estate. Financial institutions such as banks, fund managers, or insurance companies may nonetheless require the next of kin to procure evidence of legal heirship for claims to financial assets.
While registration of a will is not compulsory, it lends authenticity to the document and makes a potential challenge to its validity that much more difficult. Upon execution of a will outside India, it is advisable that the will is notarized or registered in the foreign country of residence in accordance with applicable laws of that country and, thereafter, attested by the Indian embassy or consulate in that country for acceptance before Indian courts.
Varun Kalsi, director, private client, and Ira Srivastava, associate, Cyril Amarchand Mangaldas.