It does not matter which part of the world you reside in, for an NRI buying property in India can be a very tedious task. But the Indian legal affairs, over the years, have made this a fairly effortless job.
NRI Guide to buying property in india: Introduction
Non-resident Indians (NRIs) are often seen as enthusiastic on buying a property in India; whether it’s for family living back home. Or for the reason that they want a getaway in India every time they return. Or simply because they would like to come back and stay in India later in their lives. In general, they rely on their relatives to help them abide by various regulations.
The Reserve Bank of India governs such operations and they fall under the purview of the Foreign Exchange. Since the matter of acquisition of immovable property is covered under the provisions of FEMA, it is advisable to recognize the legal position.
RBI Guidelines for NRI buying property in India
The RBI usually allows NRIs/PIOs who hold a valid Indian passport to buy residential/commercial properties from the country. The investor must not obtain RBI’s special authorization for the same. The investor is also not required to notify the RBI about buying residential/commercial property in India.
An NRI buying property in India from USA, or any other foreign nations, can be of two kinds. If the NRI investing in a commercial/residential property in India cannot come to the nation, the purchase can be executed by giving an officially binding power of attorney to another person.
Types of properties for NRIs to purchase from abroad
- Buying property in India for NRI encompasses all sorts of immovable properties in India other than agricultural land, farm house and plantation property.
- NRIs cannot invest in farmhouses without obtaining extraordinary permission from the RBI. The RBI would judge such applications on a case-to-case basis only.
- Under the RBI’s general authorization, an NRI buying property in India, either individually or mutually with another NRI. However, local Indians who are not allowed to buy properties in India cannot become joint investors in such properties. This is irrespective of the input of the second holder to the purchase.
- If an individual owning a property in India becomes an NRI, then he/she can continue using the property. NRIs are also permitted to hold a farmhouse, agricultural land, or a plantation that they possessed prior to becoming an NRI. They can also to let out their possessions. It does not matter when the property was attained.
- NRIs are allowed to gift or sell immovable properties to any Indian occupant. They can also transmit or gift any property, other than farmhouse, agricultural land, or plantation property, to a different NRI.
Funding and Financial Transactions for buying property in India for NRI
While purchasing a property in India, NRIs are needed to carry out all business deals in Indian currency and through local banks. This means that NRIs should have an NRI bank account in one of the authorized Indian banks.
NRIs can easily obtain funds for buying properties if their formalities are in order. Many financial institutions offer numerous different NRI home loan schemes. Though, they need to make sure that they are in a place to invest at least 20 percent of the property value from their own sources.
It is vital that NRI’s make sure that they use their NRO/NRE accounts for all internal money remittances or payments. Prior to approaching a bank, NRIs must get their documents verified by a competent lawyer.
If the property is jointly held or inherited by the supplier, it is important to make certain that the title deed is cleared.
- NRIs must ensure that no bills are left to be paid with any of the authorities are to be cleared.
- All the transactions should be done in Indian money exchange through Indian banks. All the transactions should be carried among the course of Indian banking channels only.
- For this reason, NRIs can use NRO/NRE account for all inward remittances. Post-dated cheques or ECS from your NRE, NRO or FCNR (Foreign Currency Non-Resident) account can also be released.
- NRIs can also enjoy tax benefits that an Indian resident is permitted to on purchase of the property such as deduction of Rs. 1 Lakh under section 80 C on the Income Tax Act, 1961.
Documents used for NRI to buy property in India?
1. Indian Passport or Overseas Citizen of India (OCI) Card is known to be one of the most crucial forms of document while purchasing property for NRIs. Therefore, if an NRI contains a passport of some other country as well, then it is compulsory to keep a Person of Origin Card (PIO) too. If an individual is preparing to gain the citizenship from India, then you will need an OCI card. Hence, to issue and OCI card, once can contact the Indian embassy of the country that you live in.
PAN (Permanent Account Number) Card is needed to have a record of income tax returns on the investment done on the property in India. It is also an important document for an NRI as purchasing property in India can become an easy task. Hence, issuance of PAN Card can also be done via online.
Power of Attorney Certificate is also crucial in all of NRIs situations as they cannot alone mediate between the deals alone. They would require a lot of travelling which would be even more expensive. Hence, hiring a Power of Attorney who is reliable can assist in registration of property, execution of sales and possessions and many other tasks. All these decisions will be in the hands of Power of Attorney after discussing and suggesting the best interest to the NRI.
Steps to buying property in India for NRI
Purchasing a property in India does not require any special permission or recommendations under any special document for NRIs. Steps for NRI buying property in India:
- Decide the type of property you want to purchase
- Do systematic research about the locality, pricing and the real estate property developer’s backdrop.
- Calculate the rate & affordability of the property you wish to purchase and keep funds ready for the down payment
- If you require a loan, contact a nationalized bank in India for the loan process
- Collect the needed documents
- Appoint your agent as the POA holder and define his/her powers related to the property purchase
- Negotiate the final price of the property and finalize the loan disbursement amount
- Open an NRE or NRO account to transmit funds as foreign currency to the Indian bank
- Finally, the POA will do all the legal paperwork and closing formalities
Important Points while finalizing the property
- Familiarity with the location: Before deciding the location, get the master plan of the city you aim to invest in. If you choose to spend in your native town where you grew up. The master plan would tell you how the city would look like. This will give you a reasonable estimate of the places that would grow in demand and what are the most profitable places or areas to invest.
- Evaluate the value of currencies: Keep a close look on the trend of the Rupee in comparison to the currency of the country you work in. Choose a time for investment watching the trend of the price of Rupee. Opt for a time when the Rupee falls against your currency. Therefore, on applying for a loan the banks would also authorize it accordingly.
- Evaluate the worth of the Property: Although a specialized surveyor can evaluate the proper value of a property, you can also carry out a swift valuation of the property using the techniques described below.
- Online Approach to compare prices: Your developer might have given a cost of a flat or apartment which is of a certain dimension. Collect the prices of the apartments in the similar locality of similar dimensions online and compare the prices.
- Also, make sure to find out the title of the property or any pending litigation.
- Source for funding the purchase of immovable property in India: The payment for acquisition of permitted property by an NRI buying property in India, can be made by way of remittance through banking channels from abroad or from money lying in their NRE/NRO or FCNR account.
Home Loan Services
NRIs are even permitted to finance the purchase with home loan in Indian Rupees. The home loan can be given by the Indian employer of the NRI employee for the reason of financing of the property.
As far as transactions of EMI for the home loan 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 bank account of the NRI. In case the NRI is purchasing the property for the purpose of his own residence, the NRI can even take loan against deposits up to an amount of Rs. 100 Lakhs for the principle of servicing the home loan.
The RBI permits to take home loans for NRI buying property in India. You can also take a loan for repairs and renewals of your home. You can pay the EMIs in any one of the below mentioned ways:
- By remitting the cash from your foreign bank account through regular banking channels
- By producing post dated cheques or Electronic Clearance Service (ECS) from your NRE, NRO or FCNR Account
- Out of the rental income that this property makes
- Cheques produced from your relative’s bank account
Tax Benefits for NRI’s
Under provision of Section 24 of the Income Tax Act, the interest on home loan is deductible from the income from house property to the degree of Rs 1.5 Lakh per annum. Further, up to Rs 1 Lakh of principle refund can be deducted under section 80C.
- This interest can be deducted from leasing income. In case of self-occupied, your rental income will be zero but you can still allege a deduction of interest of up to Rs 1.5 Lakh. Although there will be a loss from house party.
- The loss can be set off against income from other resources like interest income, capital gains etc. If the loss is not completely worn out in a particular year, it can be carried further for 8 years. That is, you can show the loss in your tax returns for the subsequent 8 years and off-set it against other income.
- Short-term capital gains tax will be valid if the property is sold within 36 months of purchase of it. It depends on your income slab. Long-term capital tax will be imposed if it is sold after 36 months.
- Income produced from renting the property is also taxable if it crosses the exemption limit.
- An NRI who purchases a property has to pay 1% property tax if the value of the property is more than Rs. 50 Lakhs and in case the property is obtained from another NRI, it’s even higher.
NRI Buying Property in India Power of Attorney
For those NRIs who can’t be physically there in India to buy property, there is a concept known as Power of Attorney or POA. This means that you as an NRI can opt someone close to you such as a trusted person and permit them (legally) to complete the transaction on your behalf. They will be signing contracts and other official documents on your behalf.
To get a suitable POA you have to visit the Indian Embassy of the city and country where you are situated and sign the document in front of the consulate officer.
Can an NRI give power of attorney for property acquisition transactions?
As a matter of fact experts recommend assigning a Power of Attorney to a person residing in India so that he or she may complete formalities such as registration, possession, execution of contract of sale etc. A Power of Attorney can be given to execute all contracts, deeds, mortgages, lease, sell and all matters relating to running the property.
Nevertheless, at any given time, it would be healthier to give a specific power of attorney to any person. This must be restricted only to a single act such as only purchase or only for lease. The POA should be performed on a stamp paper. You must then get the Power of Attorney attested by any certified official.
Many times, NRI buying property in India, developers demand a Power of Attorney in their favor. You may decide not to give this Power of Attorney but it would lead to setbacks since all documents would have to be mailed to your foreign address. Giving a specific Power of Attorney would be a better alternative.
Repatriation of funds back to the foreign country
There are certain instructions for repatriation of funds. An NRI or Person of Indian origin (PIO) may send back the proceeds from the sale of immovable property in India on the conditions mentioned below:
- The property must have been bought in accordance with the FEMA directives, applicable at the time of acquisition
- The sum repatriated cannot exceed the original amount paid for the property. If the property was obtained in foreign exchange remitted through normal banking channels or out of funds held in an FCNR bank account
3. However, in the following situations the NRI/PIO may repatriate a maximum of $1 million per financial year:
- From the balance held in the NRO account, if the property was bought out of rupee source of funds.
- If the property was obtained by way of gift, sale proceeds must be credited to an NRO account and may be sending back thereafter.
- If the property was inherited from a local Indian, funds may be repatriated on producing a documentary proof proving inheritance. An undertaking by the NRI/PIO, and a certificate of an authorized chartered accountant in the layouts prescribed by the CBDT.
4. In the case of a residential asset, repatriation of sale advances is restricted to less than or equal to two properties:
- A foreign national may repatriate trade proceeds even if the property was inherited from a person outside India. However, prior consent of the RBI must be obtained.
- A citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran must seek detailed approval from the RBI for repatriation of sale proceeds.
Continuation of ownership of properties after becoming NRI
An individual who owns a property when he turns into an NRI can keep on holding the property in his name. Such resident Indian turning into an NRI is even permitted to proceed to possess rural land, agricultural property or farmhouse which he is generally not allowed to buy becoming an NRI.
An NRI is permitted to rent the property, which he claimed when he became an NRI without taking any permission from RBI. An NRI is even permitted to recover the money sent outside India after suitable taxes have been paid in India from lease received.
FAQ’s for NRI Buying Property in India
1. Decide the type of property you want to purchase
2. Do systematic research about the locality, pricing and the real estate property developer’s backdrop.
3. Calculate the rate & affordability of the property.
4. If you require a loan, contact a nationalized bank in India for the loan process
5. Collect the needed documents
6. Appoint your agent as the POA holder and define his/her powers related to the property purchase
7. Negotiate the final price of the property and finalize the loan disbursement amount
8. Open an NRE or NRO account to transmit funds as foreign currency to the Indian bank
9. Finally, the POA will do all the legal paperwork and closing formalities
The property to be bought by an NRI can either be purchased in single name or jointly with any other NRI. A resident Indian or an individual who is otherwise not allowed to invest in the property in India cannot even be made a joint owner in such property.
As per decree 114C, it is not compulsory for an NRI/PIO to have an Aadhar card for dealing his/her property in India.