Inheriting a Dubai Flat as a Resident Indian: FEMA, Tax and Reporting
A resident Indian can inherit and keep a Dubai flat without Reserve Bank permission: section 6(4) of FEMA covers property inherited from someone who lived outside India, and the 2022 overseas investment rules cover a flat a resident parent bought legally. India charges no tax on the inheritance itself, but the flat goes into Schedule FA, and rent and any sale gain are taxed in India.
Key takeaways
- Inheriting is not income: the 2025 Income-tax Act (section 92, the old 56(2)(x)) excludes property received by will or inheritance, and India has no estate duty.
- When you sell, your cost is the previous owner's cost (section 73, old 49) and their holding period counts towards yours. Held over 24 months in total, the gain is long-term at 12.5% plus surcharge and cess.
- Much of the rupee "gain" can be currency: a dirham bought at about Rs 18.3 in 2016 is worth about Rs 26.1 now, and the taxman counts the difference.
- Schedule FA runs on the calendar year. The flat appears in your return from the first calendar year in which you held it, even for a few days.
- What you may do with the sale money depends on who you inherited from: a non-resident parent's flat falls under section 6(4); a resident parent's LRS purchase stays inside the LRS rules.
Two routes into FEMA, and why the difference matters
FEMA asks one question before any other: where did the person you inherited from live? The answer decides which rule governs the flat and the money it produces.
| Point | Inherited from someone resident outside India (e.g. a parent working in Dubai) | Inherited from a resident Indian who bought under LRS |
|---|---|---|
| Legal basis | FEMA section 6(4) | Rule 21, Foreign Exchange Management (Overseas Investment) Rules, 2022 |
| Permission to hold | None needed | None needed, if the parent bought in line with the rules then in force |
| Rent and sale proceeds | Can be kept abroad and reinvested abroad | Must be reinvested in a permitted asset or brought back, under the LRS 180-day rule |
| Bringing money home | Allowed at any time | Required unless reinvested |
| Indian tax and Schedule FA | Same in both cases | Same in both cases |
Section 6(4) lets a resident "hold, own, transfer or invest in" foreign property inherited from a person resident outside India, and advisers read it as letting the heir keep the proceeds abroad too. Where a parent living in India bought the flat with LRS remittances, the heir steps into that framework instead, and idle sale proceeds fall under the 180-day rule. One adviser summary we read put the two cases the other way round, so confirm your route with your bank's foreign exchange desk before you move money, and keep the parent's residence records.
The Dubai side of inheriting (Sharia default rules, DIFC and DLD-registered wills, the court process to move the title deed into your name) is a separate job, covered in our guide to wills and inheritance for Dubai property.
No tax when you inherit
Under the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026, section 92 taxes gifts above Rs 50,000 as income but excludes anything received under a will or by inheritance. The same was true under section 56(2)(x). There is nothing to pay in India on the day the flat becomes yours, whatever it is worth.
Tax arrives later, from two things: rent while you own the flat, and the gain when you sell it.
Rent while you hold it
As a resident you are taxed in India on worldwide income, so Dubai rent goes into your Indian return as house property income. The UAE levies no personal income tax on rent, so there is no foreign tax to credit, and the Indian tax is the only tax. The rent also shows up in Schedule FA against the property.
Selling: your cost, your holding period, your rate
Section 73 of the 2025 Act deems your cost to be the cost to the previous owner, plus improvements by either of you. The holding period includes the previous owner's time, so a flat your father held for ten years is long-term the day you inherit it. Long-term gains on land and buildings are taxed at 12.5% without indexation, plus surcharge and 4% cess. The detail, including the cost rules for very old purchases, is in our guide to capital gains on inherited property.
Both the price and the cost are converted into rupees. For the sale, the exchange-rate rule (Rule 115 under the old rules) uses SBI's telegraphic transfer buying rate on the last day of the month before the month of sale. For the cost, the working convention is the rate when the previous owner paid; keep the original purchase papers and bank records, because you are proving someone else's cost.
Worked example: a JVC flat inherited from a father in Dubai
Your father, working in Dubai, bought a flat in Jumeirah Village Circle in 2016 for AED 800,000. The dirham is pegged to the dollar, and the dollar averaged about Rs 67.2 that year, so the dirham was about Rs 18.3: a cost of Rs 1,46,40,000. He died in 2025 and you, living in Pune, inherited it. You sell in 2026 for AED 1,300,000. At AED 1 = Rs 26.1 (your bank's TT buying rate will be slightly lower), that is Rs 3,39,30,000.
- Rupee gain: Rs 3,39,30,000 minus Rs 1,46,40,000 = Rs 1,92,90,000. Long-term, because your father's holding counts.
- Tax: 12.5% is Rs 24,11,250. Income above Rs 1 crore brings a 15% surcharge, the most charged on these gains: Rs 3,61,688, then 4% cess of Rs 1,10,918: about Rs 28.84 lakh in all, roughly AED 110,500.
- The currency share: the dirham gain is AED 500,000, worth Rs 1,30,50,000 at today's rate. The other Rs 62,40,000 of taxable gain is the rupee's fall since 2016.
You can shrink the bill. Reinvesting in a house in India can bring the gain under section 82 (old 54), and up to Rs 50 lakh can go into capital gains bonds under section 85 (old 54EC). A new flat abroad earns no exemption. Our guide to bringing Dubai sale proceeds to India covers those reliefs and the bank paperwork.
Schedule FA from the year you inherit
Schedule FA follows the calendar year, not the April-March tax year. If your father died in March 2026 and the flat passed to you, it belongs in the Schedule FA for calendar 2026, filed with your return for the tax year 2026-27. It stays there every year you hold it, including the calendar year you sell. Any Dubai bank account that receives the rent goes in as well. Our Schedule FA guide walks through Table C field by field.
The penalty for leaving it out is steep. The Black Money Act sets Rs 10 lakh a year for a missed disclosure. Budget 2026 eased prosecution for small foreign assets up to Rs 20 lakh, but that relief excludes immovable property, so an inherited flat gets no benefit from it, however modest its value.
Keep, let or sell: the honest trade-offs
Keeping the flat makes sense if the rent is steady and you are comfortable managing a tenant, an owners association and service charges from India. It suits you less well if:
- You would run it from a distance. Vacancies, maintenance and agent fees eat into a yield that India taxes in full.
- You will need the money in India soon. A sale takes time once the DLD title transfer and any court steps are counted.
- Several siblings inherited together. Co-owners must agree on every letting and sale decision, and each has their own Schedule FA and tax.
- You are exposed to the rupee. A weaker rupee raises your rupee gain and the tax on it, even if the dirham price is flat.
If you would rather hold property you can see, compare the numbers against a home in India using our look at Dubai versus India property investment.
Frequently asked questions
Do I need RBI permission to inherit a Dubai flat?
No. If the person you inherited from lived outside India, section 6(4) of FEMA lets you hold, transfer or invest in the flat. If a resident parent bought it under LRS, Rule 21 of the 2022 overseas investment rules lets you acquire it by inheritance. Either way, keep proof of how and when the parent bought it.
Is there any tax in India on inheriting property abroad?
No. Section 92 of the Income-tax Act, 2025 (old section 56(2)(x)) excludes property received by will or inheritance, and India has no estate duty. You are taxed later, on rent the flat earns while you hold it and on the capital gain when you sell it.
How is my cost worked out when I sell the inherited flat?
Your cost is what the previous owner paid, plus improvements, converted to rupees; the previous owner's holding period counts towards yours. Because the rupee has fallen against the dirham, a large part of the rupee gain can be currency movement, and it is taxed at the same 12.5% plus surcharge and cess.
When do I first report the flat in Schedule FA?
In the return covering the first calendar year in which you held it, even briefly. Inherited in March 2026, it goes into the Schedule FA for January to December 2026, filed with the return for tax year 2026-27, and every year after that until the year you sell.
Can I keep the sale money in Dubai?
If you inherited from someone resident outside India, section 6(4) allows you to keep and reinvest the proceeds abroad. If the flat came from a resident parent's LRS purchase, the proceeds must be reinvested in a permitted asset or brought back to India under the LRS 180-day rule. Check your case with your bank.
If you have inherited a Dubai flat and are weighing whether to keep or sell it, Realty Hunting can help you value it and plan either route.
