Non Residential Indians (NRI’s) holding Indian passports, unlike foreign origin people, hold similar rights as Indian residents in property ownership norms under FEMA rules. With the relaxation of FDI norms in the real estate sector, domestic real estate developers are now looking at possible joint ventures with international realty developers. Such a communion is likely to benefit the NRI investors as they can invest in Indian realty sector from their own country of residence with assured paperwork and transparent financial dealing.
If you are looking to invest in property in India you are on the right page.
All NRI investments in real estate or immovable properties are considered as transactions that get regulated under the FEMA. This is essentially because an NRI would be dealing with foreign exchange. It is considered to be a type of transaction which is bound to have some international financial implication. The current account transactions or capital account transactions of the NRI which are used to make investments in real estate thus get automatically regulated under FEMA. Current Account Transaction consists of payments due as interest on loans and net income from investments.
The Reserve Bank has granted a blanket permission to NRIs to purchase property in India for their residential and commercial purposes. There is also no limit on the number of investments or the quantity of investments that can be made in real estate. The immovable property can be purchased by inward remittances from any place outside India or through funds maintained in NRI accounts in the banks within the country.
FEMA stipulates that before making a purchase a specified form called the IPI 7 needs to be filed with the central office of the RBI along with the title deed or any other certified copy of the document proving that the NRI has executed an agreement to purchase property within the country. The form has to he filed within 90 days of the purchase of property and has to be accompanied with a bank certificate stating the consideration paid for the purchase. Permissions are generally granted without undue delays if all the relevant papers are submitted.
NRI desiring to sell property within India has a lock in period of three years. That is, NRI under the FEMA regulations is allowed to sell property only after three years from the date of acquisition for the property or from the date of payment of the final installment of the consideration for its acquisition, whichever is later.
It is easier to bring money into the country. Getting out has a number of bottlenecks, which is a constant disappointment for the NRI community. FEMA says no matter what the proceeds of the sale may be, the amount for repatriation should not exceed the amount paid for acquisition of the immovable property in foreign exchange received through the normal banking channels or out of funds held in foreign currency Non- Resident Accounts. The repatriation of sale proceeds is restricted to only two properties. NRIs are also restricted from repatriating returns from real estate investments in the form of dividends.
Non Resident Indian (NRI) is a citizen of India, who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. Non-resident foreign citizens of Indian Origin are treated at par with Non Resident Indian (NRIs).
Person of Indian Origin (PIO) (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who
A person, who is minor child of a person mentioned in clause (a)
Provided that no person, who is or had been a citizen of Pakistan, Bangladesh shall be eligible for registration as an Overseas Citizen of India.
Under the general permission granted by RBI, the following categories can freely purchase immovable property in India:
The general permission, however, covers only purchase of residential and commercial property and not for purchase of agricultural land/plantation property/farm house in India. OCI can purchase immovable property in India except agricultural land/plantation property/farmhouse.
Since general permission is not available to NRI/PIO to acquire agricultural land/plantation property/farm house in India, such proposals will require specific approval of Reserve Bank and the proposals are considered in consultation with the Government of India.
The mere acquisition of property does not attract income tax. However, any income accruing from the ownership of it, in the form of rent (if it is let out)/annual value of the house (if is not let out and it is not the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of this house or part thereof is taxable in the hands of the owner.
The Government of India has granted general permission for NRI/PIO/OCI to buy property in India and they do not have to pay any taxes even while acquiring property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India, and they will have to obtain a PAN and file return of income if they have rented this property. On sale of the property, the profit on sale shall be subject to capital gains. If they have held the property for less than or equal to 3 years after taking actual possession then the gains would be short term capital gains, which are to be included in their total income as tax as per the normal slab rates shall be payable and if the property has been held for more than 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.
India has DTAA’s with several countries which give a favorable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is situated in India.
Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.
Type of asset: Assets like house property, land and building, jewellery, development rights etc.
Rate of tax deduction at source (TDS):
Exemption available (only for long term capital gains)
The long term capital gains arising on sale of a residential house can be invested in buying/ constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower. If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted. As per the financial budget 2007-08, a cap of Rs. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds.
In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.
In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.
The rental income, being a current account transaction, is repatriable, subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to certain conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.
An authorized dealer or a housing finance institution in India approved by the National Housing Bank may provide housing loan to a non-resident Indian or a person of Indian origin residing outside India. For acquisition of a residential accommodation in India, subject to the following conditions, namely:
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