Guidelines To NRI For Purchasing-Selling Property In India

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.

In case the acquisition is by way of gift the transferee should be a relative as defined in section 2(77) of the Companies Act, 2013.

Payment for Acquisition of Immovable Property

NRIs can make payment for acquisition of such immovable property out of:

  • Funds received in India through normal banking channels by way of inward remittance from any place outside India; or
  • By debit to his NRE (Non Resident External Rupee) / FCNR (B) Foreign Currency Non-Resident (Bank)/ NRO (Non Resident Ordinary Rupee) account; or

Such payments cannot be made either by traveller’s cheque or by foreign currency notes or by other mode except those specifically mentioned above.

A NRI (other than citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan) purchasing residential / commercial property under general permission is not required to file any documents with the Reserve Bank.

Declaration is mandatory:

Foreign citizens of Indian origin, purchasing residential property in India under the general permission are required to file a declaration with the central office of the RBI at Mumbai within 90 days from the date of purchase of the property or final payment of amount. This has to include a certified copy of the document evidencing the transaction and bank certificate regarding the amount paid.

Sale proceeds: The RBI has granted general permission for sale of such property by NRI without its permission. However, where the property is purchased by another foreign citizen of Indian origin, the funds towards the purchase should either be remitted to India or paid out of the balance in a NRE or FCNR account. 

The remittance of the sale proceeds depends on the mode of acquisition – whether it was acquired out of funds remitted from outside or out of rupee funds. A property can be acquired out of rupee funds by a NRI before leaving India, or after leaving India, but from a savings bank account in an Indian bank out of income earned in India.

Repatriation of Sale Proceeds:

In the event of sale of immovable property other than agricultural land / farm house / plantation property in India by NRI / PIO, the authorized dealer will allow repatriation of sale proceeds outside India provided;

  1. The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of FEMA Regulations;
  2. The amount to be repatriated does not exceed (a) the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels or out of fund held in Foreign currency Non-Resident Account or (b) the foreign currency equivalent as on the date of payment, of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property.
  3. In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

In the case of sale of immovable property purchased out of Rupee funds, ADs may allow the facility of repatriation of funds out of balances held by NRIs/PIO in their Non-resident Rupee (NRO) accounts upto US$ 1 million per financial year subject to production of undertaking by remitter and a certificate from the Chartered Accountant in the formats prescribed by the CBDT.

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

Taxation: 

Any incomes earned by way of selling of properties in India by NRIs are liable to pay capital gain tax under the Income Tax Act 1961. NRIs who sell their property within three years of its purchase have to incur capital gains tax at 20 per cent. 

In case of an inherited property, while computing the long-term capital gains, the cost to the previous owner (i.e. the person from whom the property is inherited) would be considered as the cost of purchase. 

Although NRIs are subjected to a Tax Deducted at Source (TDS) of 20 per cent on the long-term capital gains, there are certain instances when an NRI can get a waiver. One such case would be if the NRI is planning to re-invest the capital gains in another property or in tax-exempt bonds. 

If an NRI sells the property before three years of purchase, short-term capital gains tax is imposed at a TDS rate of 30 per cent. But, he can apply to the income tax authorities, from where he holds the PAN, for a tax exemption certificate under Section 195 of the Income Tax Act, along with the proof of reinvestment of capital gains. 

An NRI gets two years’ time to invest in another property and up to six months if he chooses to invest in bonds. If the NRI is planning to buy another house, the payment receipt or allotment letter needs to be produced and an affidavit is needed if capital gains bonds are bought. 

Tax exemptions:

In case an NRI sells a residential property after three years of purchase and reinvests the money in another residential property within two years from the date of sale, the profit generated is exempted to the extent of the cost of the new property. For example, if the capital gains is Rs 15 lakh but the new property costs Rs 10 lakh, the remaining Rs 5 lakh is treated as long-term capital gains. However, NRIs can’t use the proceeds of the sale of property in India on a foreign property and still claim the exemption. 

Section 54-EC of the I-T Act states that if an NRI sells a residential property after three years and invests the amount of capital gains in bonds, he will be exempted from capital gains tax. However, the bonds will remain locked in for three years. 

Documents Required For Transactions:

Passport

An NRI, who want to sell a property in India, should hold a passport; not necessarily an Indian passport. This will serve as the identity proof of the person, involved in the transaction.

For an Overseas Citizen of India (OCI) and a Person of Indian Origin (PIO), a passport serves the same purpose.

PAN Card

A number of NRIs do not pay taxes in India, as their income is taxable in the countries they stay. However, experts believe NRIs should apply for a PAN (Permanent Account Number) card here when they intend to buy a property in India, as it will be required to apply for a tax exemption certificate as after the sale of the property. PAN numbers are given out to NRIs with a foreign communication address to select countries.

Power of Attorney:

For those NRIs who can’t be physically present in India to buy property, NRIs have an option to give POA to their friends or relatives and allow them (legally) to complete the transaction on your behalf. They will be signing agreements and other official documents on your behalf. The POA can be general or specific about the rights your representative can exercise. 

To get a valid POA you have to visit the Indian Embassy of the city and country where you are located and sign the document in front of the consulate officer. The documents also requires a photograph, your left thumb impression and your signature; if it is to be considered as valid. Once this is done, you can send this POA document to India, where it has to be adjudicated.

Tax Returns

If an NRI has been holding a property for a certain period and earning money from it (by renting it out, etc), the transaction becomes taxable. In that case, tax returns for the whole property-ownership period should also be kept ready.

Address Proof

An NRI has to give documents in support of his address in India as well as abroad. This may include a ration card, telephone or electricity bills, life insurance policy statements, etc. Same set of papers are also required as the proof of residence abroad.

Sale Deed

A key document needed in the process is the sale deed, also a primary proof of ownership. A legal document, sale deed is an agreement executed by an NRI while purchasing an under-construction property in India.

Allotment Letter

A letter of allotment (from a society, a builder or any relevant authority) bestows the property to the said person who holds it.

Documents From The Society

For an apartment in a particular society, a letter from the apartment/society is needed for a go-ahead to the sales process. This document states the seller has no outstanding payments to the society. A copy of membership of the society is also important to establish ownership of the property.

Approved Building Plan & Occupation Certificate

While a copy of an approved building plan is necessary for selling a property, an occupation certificate is a proof that the apartment has been occupied and is also given out by the builder or the building society.

Encumbrance Certificate

An encumbrance certificate is necessary to assure the buyer that the land or the property has no dues to any legal authority. This is important in the case of a house, an apartment or even land.

Apart from these documents, it would also help if an NRI can provide documents of property tax receipts over the years.

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