For many important reasons, people dwelling outside India that is Non Resident Indians (NRIs), Person of Indian Origins (PIOs) and foreign nationals have been procuring immovable properties like Bungalows, flats, luxury villas and commercial properties in India. With the rupee falling, real estate has been one lucrative investment option for non-residential Indians (NRIs).
What property Can i Buy?
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 have to get approval from the RBI and the government. The RBI’s regulations on it are fairly easy as well and you do not have to take any prior permission from the authorities. The rules for any such property transaction fall under the Foreign Exchange Management Act (FEMA).
FEMA – Some Guidelines
A person residing outside India, planning to buy or sale an immovable property is regulated by Foreign Exchange Management Act, 1999(FEMA) under Section 6 (3) (i), Foreign Exchange Management Regulations, 2000 (Acquisition and Transfer of Immovable Property in India) and Master Circular on Acquisition and Transfer of Immovable Property in India.
The regulations for acquiring or transferring the immovable property in India are administered by the residential status of a person under FEMA. FEMA has sorted persons in two distinct categories namely ‘Person Resident in India’ and ‘Person Resident outside India’ which has been further categorized as Non- Residential Indian, Foreign National of Non-Indian Origin and Foreign National of Indian Origin.
FEMA has further defined Non- Residential Indian (NRI) as a person who is a citizen of India but resides outside India. This puts forth another term, Person of Indian Origin (PIO). PIO means an individual (not a resident of Afghanistan or Bhutan or Bangladesh or China or Nepal or Pakistan or Sri Lanka.) who at some point of time held an Indian Passport; or who or either of whose parents or either of whose grandparents was a citizen of India under the Constitution of India or the Act of Citizenship, 1955 (57 of 1955).
Under Section 6 (5) of FEMA, a Person Resident Outside India can purchase, transfer, invest or own any immovable property in India if it was owned, acquired by a person residing in India or inherited from a person who was a resident of India.
Funding the Purchase by NRIs (Non Resident Indians)
NRIs’ holding non-resident external (NRE) or Non Resident Ordinary (NRO) rupee accounts in India are eligible to buy property by issuing cheques from such accounts. NRIs’ holding deposits in Foreign Currency Non-resident (FCNR) accounts can also make purchase using funds from such accounts. Besides this, overseas currency can also be brought to India through legitimate banking channels.
Am i Eligible for 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 has to be repaid using the same currency. However, the loan amount, according to the regulations, cannot be credited directly to the bank account of an NRI and has to 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.
As per the tenets of the Income Tax act of India (section 24), interest on a home loan is deductible from the income gained from house property to the extent of Rs.2 lakh per annum for self-occupied property. Other than self-occupied property, actual interest paid can be claimed as a benefit. Over and above this, up to Rs.1.5 lakhs is deductible on account of principal repayment under the overall limit available as per section 80C.
I’m Not willing to travel for registering the property?
It is often that NRIs’ (Non Resident Indians) are not willing to travel to India for registering the property in their name. In such cases and situations it is within their rights to issue POA in favour of a close relative residing in India. The relative can then sign on the purchase contract on his behalf and also register the same in his or her name. The POA, per se, must be signed by the NRI in the presence of a notary or consulate officer in the country of his residence.
Once the POA is sent to India, the POA holder will have to sign and adjudicate it within three months from the date of assigning the power, at the registrar’s office in India. After this procedure is completed, it can be said that the POA has been legally given.
Repatriation of funds and tax implications for NRIs
When a sale of property takes place and the amount so received as sale proceeds is sent abroad to the country of the NRI’s residence, it is called repatriation of funds. The process involves conversion of Indian rupee to foreign currency.
As per the Indian tax laws, if an NRI holds a property in India, he or she is not liable to pay tax unless there is a rental income accruing from it. However, if the property is sold, then capital gains tax – short term or long term, as the case may be, is applicable.