Guidelines for buying properties in India

The Foreign Exchange Management Act, 1999 (FEMA) regulates the purchase of properties by Non-Resident Indians (NRI), Overseas Citizen of India (OCI), Person of Indian Origin (PIO) and foreign citizens.

OCI and NRI

• An Indian citizen resident outside India (NRI) or an OCI does not require any special permission to buy immovable property in India.

• However, no payment of the purchase price can be made in foreign currency. The buyer make the purchase in rupees through funds received in India through normal banking channels, or funds maintained in any non-resident account under FEMA and RBI regulations.

• There are also no restrictions on the number of immovable properties an NRI or a PIO may purchase for either residential or commercial purposes.

OCI/PIO Card

• All PIO cards issued till 09 January 2015 are deemed to be OCI card. As such the PIO Card scheme has been withdrawn and henceforth, applicants may apply for OCI card ONLY, as PIO card scheme is no longer in existence.

• An OCI card will need to be obtained to prove NRI Status.

• The general requirements to obtain a OCI card include holding an Indian passport at any time, one’s parents, grandparents or great grandparents being born in India or permanent residents of India, or spouse being a citizen of India or OCI card holder.

Foreign Citizens

• A foreign national resident outside India cannot buy immovable property in India.

• It is illegal for foreign nationals to own property in India unless they satisfy the residency requirement of 183 days in a financial year (a tourist visa lasts for 180 days).

• It is also illegal to buy property on a tourist visa.

• Moreover, property cannot be purchased jointly in the name of one eligible person with one non-eligible person. That means a NRI cannot buy a property jointly with a foreigner.

• However, a foreign national resident in India does not require approval of RBI to purchase any immovable property in India. This is because once he is a resident in India, he gets the rights like any other resident.

• For more information, please visit http://www.rbi.org.in

Nature of Property

• NRIs can buy all sorts of immovable properties in India other than agricultural land, farm house and plantation property.

• To acquire agricultural land/plantation property/farm house in India, they must get approval from the RBI and the government.

Tax

• 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.

Home Loan

• The RBI has given a general permission to banks and housing finance companies registered with the National Housing Bank to provide loans to NRIs for buying residential property in India.

• Sanctioned in Indian currency, the loan must be repaid using the same currency. However, the loan amount, per the regulations, cannot be credited directly to the bank account of an NRI and must be disbursed to either the seller’s or the developer’s account.

• The loan can be repaid using funds in an NRI’s NRO/NRE account or FCNR deposits.

Repatriation

• An NRI or OCI may repatriate the proceeds from the sale of immovable property in India on the following conditions:

• The property was purchased by the NRI/OCI in accordance with the provisions of FEMA in force at the time of the purchase

• The amount repatriated should not exceed the 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

• In the following circumstances, the NRI/OCI may repatriate a maximum of USD one million per financial year:

• Out of the balances held in the NRO account if the property was purchased out of rupee sources

• If the property was acquired by way of gift, the sale proceeds must be credited to an NRO account, and thereafter may be repatriated

• If the property was inherited from a person resident in India, it may be repatriated on production of documentary evidence proving inheritance, an undertaking by the NRI/OCI, and a certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes

• In the case of residential property, repatriation of sale proceeds is restricted to not more than two such properties.

• 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.

PAN Card

• NRIs need a PAN (permanent account number) Card because they will be expected to file income tax returns, if they have rented out the property.

• If the property is sold later, the capital gains arising from the sales would be subject to capital gains tax, so a PAN Card would be required.

• Capital gains would be included in the total income while it is being taxed.

Registration

• Registration of documents relating to immovable property is compulsory.

• The registration document should be submitted within 4 months of the date of execution.

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