You can inherit it, even though you can never buy it
The fear that an OCI cannot own agricultural land is half right, and the half that is wrong is the one that matters here. The rule under the Non-Debt Instruments framework stops an OCI or NRI from purchasing agricultural land, a farmhouse or plantation property. That is a restriction on buying.
Inheriting is different, and it is allowed. An OCI or NRI may inherit such property, and the inheritance itself needs no RBI approval; you can lawfully hold what you receive from a parent or relative who owned it. So the land your parent left you is yours to hold, and you have not done anything wrong by inheriting it. What you cannot do is add to it by purchase. Keeping this distinction clear, inherit and hold yes, buy no, is the starting point, because a lot of the anxiety comes from applying the buying rule to an inheritance where it does not belong.
But you can only sell it to a resident Indian citizen
The real constraint is on the way out, and getting it wrong can make a sale void, so it is worth being precise. Inherited agricultural land, a farmhouse or plantation property may be sold or transferred only to a person who is resident in India and a citizen of India.
That is narrower than an ordinary property sale. You cannot sell this land to another OCI, to an NRI, or to a foreign national, and a transfer to any non-resident needs prior RBI approval. In practice this means your buyer pool is resident Indian citizens, typically a local farmer or neighbour, and the sale has to be structured to a qualifying buyer. It also means a gift of the land to, say, a sibling abroad is not a clean route out. So before you agree anything, the buyer's status has to be confirmed, because a transfer to the wrong category of person is not merely taxed differently, it can be invalid under the exchange-control rules.
A foreign citizen without OCI is an RBI-approval matter
Not every heir is an OCI, and a foreign citizen who does not hold OCI sits in a tighter position that should not be generalised. The permissions that let an OCI inherit and hold this property are narrower for a plain foreign national, and such an heir generally needs prior RBI approval to hold or to transfer agricultural land, a farmhouse or plantation property.
There is a further layer for citizens of certain countries, who need prior RBI approval to acquire or transfer any immovable property in India at all, not only agricultural land. Because these positions turn on the exact citizenship and facts, a foreign-citizen heir is a case-by-case matter rather than a rule you can read off a page, and the safe course is to get the RBI position confirmed before doing anything with the property. What is protected is that property genuinely inherited from a person who held it while resident in India is recognised, but the permission to then hold or sell it is where the approval question lives.
The tax when you sell depends on rural versus urban
The tax turns on what kind of land it is, and this is where inheritors often over-worry. Rural agricultural land is not a capital asset at all under the tax law, so selling it produces no capital gain and no capital gains tax. If your inherited plot is genuinely rural, outside the municipal limits and beyond the specified distance from them, the sale is simply outside the capital gains net.
Urban agricultural land, a farmhouse or plantation property is different: each is a capital asset, and its sale is taxed like any NRI property sale. Two points help an inheritor here. Inheriting was not a taxable event, so there is no tax when you receive it; the tax arises only on sale. And the gain is computed on the original owner's cost and holding period carried over to you, so a long-held family property is a long-term gain on the parent's cost, not on zero.
Where the sale is taxable, the buyer, buying from a non-resident, must deduct TDS under Section 195, and left unmanaged that is taken on the whole sale value. A lower-deduction certificate under Section 197 fixes this so the withholding matches the gain. Under the Income-tax Act 2025 these become Section 393(2) and Section 395, with Form 13 replaced by Form 128. The net proceeds sit in your NRO account, from which you can repatriate up to one million US dollars per financial year with Form 15CA and a CA's Form 15CB, now Forms 145 and 146.
A worked example: Kabir inherits a family field
Kabir, an OCI in London, inherits about two acres of agricultural land near his family's village that his father bought decades ago. He has heard OCIs cannot own farmland and assumes he must offload it quickly and somehow.
His CA sets him straight. He may hold the land as an inheritance; he simply cannot buy more. When he decides to sell, the buyer must be a resident Indian citizen, so a neighbouring farmer is a valid buyer while his cousin abroad is not. On the tax, because the plot is rural agricultural land outside the municipal limits, it is not a capital asset, so the sale for, say, 90 lakh rupees produces no capital gain and no tax, and no lower-deduction certificate is even needed. The net proceeds go to Kabir's NRO account, and he repatriates them within the one-million-dollar yearly limit with the 15CA and 15CB forms. Had the property instead been urban agricultural land or a farmhouse, it would have been a capital asset, and the gain, computed from his father's original cost rather than zero, would have been taxable, with a lower-deduction certificate to keep the withholding to the gain. What felt like a legal problem turns out to be a normal, if rule-bound, inherited-property sale.