NRI Buying Property In India – Must-Know Regulations
Can NRIs buy property in India? This is a question that many people come up with. The answer to this question is a yes. RBI’s guidelines allow non-resident Indians to specific types of properties. However, it is possible to purchase other types of properties also by obtaining special permissions.
An NRI buying property in India must be aware of the legal provisions that pertain to owning an immovable asset within the country. As per the provisions of the Foreign Exchange Management Act (FEMA), persons of Indian origin or PIOs and NRIs are treated as same when it comes to investing in real estate in India.
Types of properties that NRIs/PIOs can buy:
The Reserve Bank of India (RBI) generally allows NRIs/PIOs who hold a valid Indian passport to buy residential/commercial properties in India. The investor need not obtain RBI’s special permission for the same. The investor is also not required to inform the RBI about buying residential/commercial property in India. An NRI can buy any number of these two types of properties as per RBI regulations and income tax laws. If the NRI investing in a commercial/residential property in India cannot come to the country, the purchase can be executed by giving a legally binding power of attorney to another person.
However, RBI’s general permission does not allow an NRI to buy agricultural land/plantation in India. This means that NRIs cannot invest in farmhouses without obtaining special permission from the RBI. The RBI would consider such applications on a case-to-case basis only.
Under the RBI’s general permission, an NRI can buy a property, either individually or jointly with another NRI. However, resident Indians or persons who are not allowed to buy properties in India cannot become joint investors in such properties, irrespective of the contribution of the second holder to the purchase.
If a person owning a property in India becomes an NRI, then he/she can continue holding the property. NRIs are also allowed to hold a farmhouse, an agricultural land, or a plantation that they owned prior to becoming an NRI. They can also to let out their property. It does not matter when the property was acquired. Tax as applicable in the country should be paid on such receipts.
NRIs are allowed to gift or sell immovable properties to any Indian resident. They can also transfer or gift any property, other than farmhouse, agricultural land, or plantation property, to another NRI.
Funding and Financial Transactions:
When buying a property in India, NRIs are required to carry out all transactions in Indian currency and through local banks. This means NRIs that want to invest in a property in India should have an NRI account in one of the authorised Indian banks.
NRIs can easily obtain funds for buying properties if their paperwork is in order. Many financial institutions offer several different NRI home loan schemes. However, they need to make sure that they are in a position to invest at least 20 percent of the property value from their own sources. This means that they can get funding for up to 80 percent of the property’s value.
As NRI property investors are required to route all their transactions through Indian banks, it is important that they make sure that they use their NRO/NRE accounts for all inward money remittances. They are also allowed to submit post-dated cheques or opt for Electronic Clearance Service (ECS) from their NRO, NRE, or Foreign Currency Non-Resident (FCNR) accounts.
Prior to approaching a bank for funds, NRIs must get all their documents verified by a competent lawyer to ensure that they are in order. In addition, they should definitely obtain a certificate from the seller stating that there is no lien attached to the property that is being purchased. If the property is jointly held or inherited by the seller, it is important to ensure that the title deed is cleared. Further, NRIs must ensure that no bills or other dues with any of the authorities are to be cleared.
Power of Attorney:
When buying under-construction properties in India, NRIs are required to provide a power of attorney in the name of the builder or an associate. A lawyer would be able to help an NRI in this regard to prevent any kind of forgery. This is to ensure that his/her investment remains secured during the developmental stage.
NRIs are eligible for a major part of the tax benefits that are available to resident Indian buyers. If they sell the property they bought within three years, then the earnings will be taxed as it is deemed to be short-term capital gains. In case the property is sold after three years, then they can exercise the option of cutting down the long-term capital gains tax payable by them by buying another property.
Repatriation of Funds:
NRIs or PIOs are required to follow certain guidelines when repatriating funds to a foreign country. The conditions to be satisfied when an NRI or PIO repatriates funds obtained by selling the immovable property in the country are as follows:
#1: The NRI/PIO should have bought the property as per the FEMA directives that are applicable at the time of buying the property.
#2: The funds being repatriated should not exceed the original investment, if the payment was done by way of foreign exchange remittance through normal Indian banking channels or from funds held in FCNR (B) accounts.
However, under the following circumstances, an NRI or PIO may be able to repatriate only a maximum of $1 million in a financial year:
#1: If he/she bought the property using rupee source from the balance that was held in his/her NRO account.
#2: If the property in India was gifted to the NRI or PIO, then the sale proceeds should be first transferred to an NRO account. The money may be repatriated after that.
#3: In the case of a property that was inherited from an Indian resident, evidence related to inheritance should be provided. The NRI/PIO should provide an undertaking and an authorised chartered accountant’s certificate to the Central Board of Direct Taxes.
Hope you found this article on ‘NRI buying property in India – Must-Know Regulations’ helpful. If you need more information and guidance, reach out to our expert property advisors for exciting offers and suggestions on the best properties available from Confident Group. Also, do visit our NRI FAQ page for more relevant information.