As per Section 6 sub-clause (5) of Foreign Exchange Management Act, 1999, An NRI or a Person of Indian Origin (PIO) is legally entitled to buy residential and commercial properties (other than agricultural land/ plantation property / farm house) in India without prior permission from RBI and there is no restriction on the number of immovable properties they can buy. The only stipulation is that the purchase amount must be paid in Indian Rupees through normal banking channels, or through NRI bank accounts under FEMA and RBI regulations.
Primary requisites for a NRI/PIO to purchase a property in India
- It is mandatory that a NRI should possess an Indian passport to invest in any property in India. However, there is no need for a NRI to seek permission from the RBI to invest, transfer, dispose or be gifted with a property.
- A NRI holding a foreign passport can also acquire, transfer, dispose or inherit a property provided he/she uses it solely for residential use. He/she should also choose an appropriate mode of payment, agree to the non-repatriation of the income from the property and report to the RBI within a period of 90 days from purchase.
- With RBIs relaxed norms, a NRI can invest or acquire a gift of any number of immovable residential and commercial properties in India. He/ she can also acquire plots of land, pre-launch properties, ready for possession properties and under-construction properties.
- A NRI can neither invest in, nor acquire an agricultural land, farm house or a plantation land as a gift. However, if the NRI/PIO has acquired an agricultural land before he/she was a NRI, he/she can sell the agricultural land only to a person residing in India, an Indian citizen.
- Apart from investing/ being gifted with an immovable property, a NRI can inherit, transfer or gift an immovable property to a resident Indian or another NRI.
- A NRI/PIO should meet all the requirements and conditions by both FEMA and the Income Tax Act, 1961 before acquiring a property.
- A NRI must possess all the important documents such as a PAN Card (Permanent Account Number), valid Indian passport, OCI/PIO card (in case of OCI/PIO), address proof, passport size photographs and notarized power of attorney to someone in India. It is necessary that a copy of the power of attorney is notarised with the Indian consulate of the country to give authenticity to it.
- If a NRI buys a property through his/her NRE account, he/she can repatriate the sale proceeds and rental income to the preferred foreign account once the Income Tax and the capital gains are deducted. One should remember that repatriation for sale proceeds for a residential property is restricted to only two properties.
- Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan cannot acquire or transfer immovable property in India (other than on lease not exceeding five years) without the prior permission of the Reserve Bank.
Modes of payment for the purchase of immovable property
- A NRI can finance for the purchase either through funds remitted to India from abroad via regular banking channels or through balance in NRE, NRO or FCNR account. No payment can be made either by traveller’s cheque, by foreign currency notes or by other modes except those specifically mentioned.
- A NRI can avail a loan based on certain terms and conditions mentioned in FEMA, Foreign Exchange Management (deposit) Regulations, 2000. However, the banks cannot grant fresh loans or renew existing loans in excess of Rs. 100 lakh against NRE and FCNR deposits, either to the depositors or to third parties. The banks should also not undertake artificial slicing of the loan amount to circumvent the ceiling of Rs. 100 lakh.
- The NRI/PIO is eligible to acquire a home loan of up to 80 percent of the property price. He/she should have passport copies, employment contract, salary certificate, valid visa, work permit, work experience certificate, statements of the NRE/NRO account and basic documents to acquire a home loan.
- A NRI can repay the home loan by way of inward remittance through normal banking channels via debit to the NRE / FCNR/ NRO account of the NRI/ PIO, or out of rental income from such property or through the borrower’s close relatives via their account in India.
- Apart from availing a housing loan in Indian rupees from an authorised dealer or a housing finance institution for investment purpose, a NRI can also seek a loan for the purpose of repairs/renovation/ improvement of residential accommodation owned by them in India. Such a loan can be repaid by way of inward remittance through normal banking channel, by debit to the NRE / FCNR/ NRO account of the NRI / PIO or out of rental income from such property. It can also be done via the borrower’s close relatives through their account in India by crediting the borrower’s loan account.
- A NRI/PIO can avail housing loan in Indian rupees from his employer in India based on certain terms and conditions. The loan shall be granted only for personal purposes including purchase of housing property in India. It will be granted in accordance with the lender’s Staff Welfare Scheme/Staff Housing Loan Scheme with subject to other terms and conditions applicable to its staff resident in India. However, the lender shall ensure that the loan amount is not used for other purposes such as buying an agricultural land etc. The lender shall credit the loan amount to the borrower’s NRO account in India or shall ensure credit to such account by specific indication on the payment instrument. The loan agreement shall specify that the repayment of loan shall be by way of remittance from outside India or by debit to NRE/NRO/FCNR account of the borrower, and the lender shall not accept repayment by any other means.
- It is mandatory that the NRI/PIO pay at-least 20 percent of the amount along with a maximum of 80 percent amount paid by the bank/financial institution. The NRI/PIO shall be liable to pay the principal amount along with the interest part through the opted mode of payment.
Tax implications for a NRI to purchase a property in India:
- The tax benefits are similar to a resident Indian. A Non-residential Indian (NRI) is entitled to all tax benefits related to purchase of property that a resident Indian is. So, you can claim an Rs 1 lakh deduction under 80C.
- There are added advantages of buying a house on loan if you are an NRI. Unlike a resident Indian, who can claim a deduction only up to Rs 1.5 lakh for home loan interest, there is no upper limit on this for an NRI. Like residents, other deductions such as stamp duty, registration charges, municipal taxes paid during the year and a flat 30% of the rent (excluding municipal taxes) deduction for maintenance is available to NRIs as well.
NRIs also have to pay a withholding TDS at the rate of 1% if your buy a property worth more than Rs 50 lakh. You’ll be exempted from wealth tax if the property is vacant and declared as ‘self-occupied’. Else you’ll have to rent it out for at least 300 days a year to avoid paying wealth tax.
Important aspects a NRI should consider before buying a property in India:
- A NRI should examine all the property documents including a registered property title that can be obtained from the local sub-registrar’s office.
- Seek legal vetting for all the property documents and ensure to have a clear property title.
- Ensure that the property name is clear from issues with appropriate rights by the seller to sell away the property.
- Ensure that there are no outstanding debts on the property and thus get a no dues certificate from the seller before buying the property.
- Acquire a bank release letter from the concerned bank in case the property has been mortgaged as security for a home loan.
- Check if the property has all approvals and permits from the civic authorities for construction purposes.
- Acquire a no encumbrance certificate for the past 30 years to ensure that no mortgage has been outstanding on the property to be purchased. This will also enable the buyer to ensure that the title belongs to the rightful owner who wants to sell it.
- Obtain required clearance under the Urban Land (Ceiling and Regulation) Act, 1976.
- In the event of sale by a third party viz., real estate promoter, check whether he is the absolute owner or holds a registered power of attorney to sell the property. It is better to buy from an established developer with an unblemished record.
- Seek property assistance from a registered valuer to ensure price quoted is the correct market value.