NRIs Buying Real Estate In India

If you are a non-resident Indian (NRI) planning to buy a property in India, time could not have been better for you to do so. While India’s real estate sector has seen a price correction in the recent past, buying property in Indian has also become more lucrative with favourable currency rates.

India has emerged as a lucrative spot for international capital. Overseas investments have surged 137 per cent, from USD 3.2 billion during 2011-13 to USD 7.6 billion during 2014-16. According to a survey, almost 30 per cent of the total global real estate transactions in India, will be cross-border.

NRIs have a variety of investment options in India. But real estate still remains to be one of their favourite options, not just because of high returns but also because of nostalgic attachment and the dream to come back to a safe and world-class retired life in their homeland.

In addition, many NRIs are also interested in several Indian metros considering high growth prospective of the real estate segment in the country having attractive options including apartments, villas, plots and pent houses with world-class facilities.

As per RBI an NRI is “ A ‘Non­ Resident Indian’ (NRI) is a person resident outside India who is a citizen of India.”

And POI  is – A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such other country as may be specified by the Central Government, A PIO will include an ‘Overseas Citizen of India’ cardholder.

What can be bought :

Though RBI has given general permission to the NRIs to purchase immovable properties in India, the permission does not grant power to acquire any and every property in India. The NRIs are allowed to purchase only residential or commercial property. So NRIs cannot purchase any agricultural land or plantation property. Since it is fashionable to own a farmhouse, be clear that under the existing dispensations, NRIs cannot purchase a farmhouse in India.

This way as long as the investment being made by NRIs in India is either in residential property or commercial property, they are not even required to intimate RBI about such purchases, even post conclusion of the transaction. Moreover there is no restriction as to the number of residential or commercial property an NRI can acquire.

How to fund it:

The payment can’t be made in foreign currency. NRIs can make the purchase using Indian currency, the Rupee, through funds received in the country by means of normal banking channels. These funds have to be maintained in a non-resident account under the foreign Exchange management Act (FEMA) and the Reserve Bank of India (RBI) regulations.

The payment for purchase of permitted property by an NRI can be made by way of remittance through banking channels from abroad or from money lying in their NRE/NRO or FCNR account. NRIs are even allowed to finance the purchase with home loan in Indian Rupees. The home loan can be granted by the Indian employer of the NRI employee for the purpose of financing of the property.

As far as payments of EMI for the home loan taken in Indian Currency in India is concerned, the same can be done either by direct remittance from abroad or from the money lying to the credit in NRE/NRO/FCNR account of the NRI.  In addition to the above sources, the home loan can even be serviced out of the rents received from such property or money transferred to borrowers account from the account of relatives of such borrower.

In case the NRI is buying the property for the purpose of his own residence, the NRI can even take loan against deposits lying in their FCNR or NRE account upto an amount of Rs. 100 lacs for the purpose of servicing the home loan.

Legal Ownership

The property to be purchased by an NRI can either be purchased in single name or jointly with any other NRI. It may be noted that that a resident Indian or a person who is otherwise not allowed to invest in the property in India cannot even be made a joint owner in such property though the second named person might not even be contributing any money towards the property

A person who owns a property when he becomes an NRI can continue to hold the property in his name. It is interesting to note here that such resident Indian becoming an NRI is even allowed to continue to own agricultural land, plantation property or farm house which he is otherwise not allowed to purchase after becoming NRI

An NRI is even allowed to get the money sent back outside India after appropriate taxes have been paid in India from rent so received.

As they live outside, NRIs have an option to give PoA to their friends or relatives to complete the property purchase process in India. The PoA can be general or specific about the rights your representative can exercise.

Documents required at the time of registration:

1. Pan card (Permanent account number) if any
2. OCI/PIO card (Overseas Citizenship of India/ Persons of Indian Origin)
3. Passport
4. Passport size photographs
5. Address proof
6. Registered power of attorney (if you are not physically present at the register office)
7. Title Deed (in the name of the seller)
8. Prior Title Deeds (of last 15 years)
9. Latest Tax Receipts (land and building if any)
10. Updated Encumbrance Certificate (covering last 15 years)
11. Approved Plan
12. Building permit / Notice Of Commencement (from corporation, municipality or panchayat, if you are purchasing a house / apartment

Taxation woes?

Not really !

When an NRI sells a property in India, TDS (tax deducted at source) calculation is done at the rate of 20.6 per cent on long-term capital gains and 30.9 per cent on short-term capital gains. However, the final taxation rate is similar for NRIs and resident Indians. If an NRI has a lower tax slab applicable to him, he can apply for a refund of the TDS by filing their income tax return.

Repatriation of funds back to the foreign country

There are certain guidelines for repatriation of funds. An NRI or Person of Indian origin (PIO) may repatriate the proceeds from the sale of immovable property in India on the conditions mentioned below:

1. The property must have been purchased in accordance with the FEMA directives, applicable at the time of purchase.

2. The amount repatriated cannot exceed the original amount paid for the property, if the property was acquired in foreign exchange remitted through normal banking channels or out of funds held in an FCNR (B) account.

3. However, in the following circumstances, the NRI/PIO may repatriate a maximum of $ 1 million per financial year:

4. Out of the balance held in the NRO account, if the property was purchased out of rupee source of funds.
5. If the property was acquired by way of gift, sale proceeds must be credited to an NRO account and may be repatriated thereafter.

6. If the property was inherited from a resident Indian, funds may be repatriated on producing a documentary evidence proving inheritance, an undertaking by the NRI/PIO, and a certificate of an authorised chartered accountant in the formats prescribed by the Central Board of Direct Taxes (CBDT).

7. In the case of a residential property, repatriation of sale proceeds is restricted to less than or equal to two properties.

8. A foreign national may repatriate sale proceeds even if the property was inherited from a person outside India. However, prior approval of the RBI must be obtained.

A citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran must seek specific approval from the RBI for repatriation of sale proceeds.

Apart from the above-mentioned points, an NRI is given the same treatment as applicable to any other Indian resident.

Some general tips –

NRI investors should avoid projects by unknown developers. Numerous buyers have fallen into difficulty, by putting their funds in projects that lacked mandatory clearances and fell short of even the minimum standards of quality.

Plan your  visit to India and evaluate projects, opt only for reputed developers. In all cases, NRIs should strictly verify points, such as the track record and brand visibility of the developer, the social and civic infrastructure available in the location, the amenities in the project and the timelines for possession, in the case of under-construction projects.

A project that is targeted towards NRIs, is no different from other offerings in the market. A property should be evaluated, purely on the basis of its location and amenities on offer, the legal validity of its title and the developer’s brand image.

Besides exercising necessary due diligence, NRIs also need to adhere to certain specific laws and regulations, while buying, selling, or renting out real estate in India

Sneha Ramamurthy

Dilzer Consultants Pvt Ltd.